Until We Reform Prescription Drug Pricing, Cash Is King
Senate Democrats are currently coalescing around a slimmed-down Build Back Better reconciliation bill that attempts to lower Medicare prescription drug prices through government “negotiation,” which is just a euphemism for price setting. The consequences of this approach are well-covered and include reduced pharmaceutical innovation when it’s needed most as the population ages.
A better way to successfully lower medication prices is by addressing the inflationary prescription drug supply chain. A new executive order in Florida, a recent decision by the Federal Trade Commission (FTC) and recent bipartisan legislation in Congress indicate this effective alternative is gaining traction.
While patients wait for state and federal action to bring long-overdue transparency and pro-patient reform to the prescription drug supply chain, they can enjoy savings today by paying with cash. Asking pharmacists for cash prices, searching for coupons online, and checking out Mark Cuban’s new Cost Plus Drug Company that deals directly with manufacturers can result in significant savings.
One-quarter of the time we visit the pharmacy counter, drugs cost more paying with insurance than just paying with cash. I recently experienced this bizarro-world drug pricing dynamic when I went to my local CVS to pick up a prescription for my son’s generic ear medication. My copay, if I paid with health insurance, was a staggering $210.57 versus a cash price of only $80.17 (Walmart offered a cash price of just $70.25.) We would never tolerate such a rip-off from car insurance, so why do we allow it from our health coverage?
Insurance-affiliated drug supply chain middlemen, known as pharmacy benefit managers (PBM), are responsible for these high insurance prices. They engage in numerous anticompetitive and secretive pricing practices, such as pay-to-play rebates and spread pricing, that drive up costs.
Several respected analyses conclude these rebates are entirely responsible for increasing drug prices in recent years. According to a Drug Channels Institute analysis of pricing data from SSR Health, brand name prescription drug list prices increased by 4.3% in 2021, but net prices (after rebates) fell by 1.2%.
Research from the University of Southern California concludes PBM practices are responsible for Medicare Part D drug plans paying $2.6 billion more in 2018 for 184 common generic medications than cash-paying Costco members. Major retailers, such as Costco, direct primary care doctors’ offices and Mark Cuban’s Cost Plus pharmacy, deliver enormous savings to cash-paying customers by eschewing inflationary middlemen and dealing directly with manufacturers to sell medications at cost with a small markup.
For instance, Cuban’s drugstore charges a 15% markup and a $3 pharmacy fee. This transparent arrangement allows it to offer the leukemia treatment imatinib, which has a retail price of $2,502.60 a month, for a cash price of only $14.40 per month.
It provides the ulcerative colitis medication mesalamine, which retails for $940.20, for just $32.40. And it provides the high blood pressure drug lisinopril, which retails for $24, for $3.60. A Harvard Medical School study finds Medicare could save $3.6 billion (37%) by purchasing generic medications from Cuban’s pharmacy.
For years, PBMs sought to maintain their lucrative arrangement by holding pharmacies to gag clauses preventing them from informing patients of cheaper cash prices. Congress outlawed this anti-consumer practice in 2018, allowing patients to access cash prices by asking for them. But more fundamental reform is needed.
Unfortunately, the drug pricing agreement in Senate Democrats’ latest reconciliation bill would eliminate a Trump Administration rule that requires PBM rebates to be passed along to patients in the form of lower drug prices, while allowing the government to enact counterproductive price controls. Fortunately, a handful of moderate Democrats seem to recognize the drug innovation consequences of price setting, suggesting the bill’s passage in the evenly divided Senate is still an uphill battle.
Florida is taking matters into its own hands. Gov. Ron DeSantis recently signed an executive order to prohibit PBM spread pricing and other inflationary pricing tricks. At the federal level, the FTC has finally agreed to study PBM practices.
This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients,” said FTC chair Lina Khan. If there were ever an instance when Americans needed this pro-consumer agency and antitrust action, this is it.
In addition, Sens. Chuck Grassley (R-IA) and Maria Cantwell (D-WA) recently introduced bipartisan legislation to crack down on PBM’s predatory pricing. It offers far more hope to reduce medication costs than the partisan reconciliation bill. Until then, cash is king.
Terry Wilcox is the executive director of Patients Rising and the host of the Patients Rising Podcast.
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