President Trump attacks symptom, not disease, in prescription drug price attack

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President Trump launched a new broadside against prescription drug manufacturers yesterday, tweeting, “Pfizer & others should be ashamed that they have raised drug prices for no reason. They are merely taking advantage of the poor & others unable to defend themselves.”  

While it may be politically popular to blame drug prices for skyrocketing insurance costs, the president’s claim doesn’t stand up to scrutiny. Most notably, insurers don’t pay list prices for the prescription drugs they put in their plan formularies.

They pay a deeply discounted rebate price negotiated by PBMs, which are middlemen between manufacturers and insurers. And these net prices have grown at less than the rate of the Consumer Price Index over recent years on a per capita basis.

{mosads}Like Trump, health insurance executives also attribute rising health care costs to prescription drug prices. America’s Health Insurance Plans President Marilyn Tavenner and American Hospital Association President Rick Pollack wrote in an op-ed for The Hill: “Unjustified and unaccountable spikes in prescription drug prices are the engine of higher costs.”


Yet even the insurance industry consultant, Avalere, concedes that drug costs account for just 14 cents of every dollar increase in premiums, which have been rising rapidly. According to a recent Congressional Budget Office report, silver plan premiums are expected to jump 15 percent next year.

This follows last year’s 37 percent increase in benchmark plans. Average premiums doubled between 2013 and 2017, according to Health and Human Services data. And a new report shows they may double again over the next three years.

Rather, the Avalere report finds, “premium growth is primarily driven by inpatient and outpatient hospital spending.” Other studies suggest prescription drugs should reduce insurance costs insofar as they keep patients out of costly hospitals.

In theory, the rebates received by PBMs and insurers from drug manufacturers are supposed to be passed on to patients. In reality, they often pad PBM and insurers’ bottom lines — to the point where PBM profits often rival manufacturers’.

A report from IQVIA showed that drug companies offered $130 billion in discounts and rebates in 2017, which should have given patients 30 percent off the list price of medicines but didn’t.

PBMs and insurers claim recent mergers — headlined by Aetna’s $69 billion merger with CVS and Cigna’s $52 billion acquisition of Express Scripts — will make medicines more affordable and slow premium increases.

Aetna CEO Mark Bertolini said the mergers would “lower overall” the cost of health benefits. But if recent history is any guide, this vertical integration will exacerbate health care costs, not rein them in.

PBM consolidation and mergers increased between 2011 and 2015. At the same time, rebates paid to PBMs grew as a percentage of total manufacturer list price increases from 6.5 to 77.4 percent. In 2017, these rebates accounted for 70 percent of total manufacturer list price increases.

Meanwhile, the portion of drugs covered by Medicare Part D that requires seniors to pay up to 40 percent of the retail price has risen sharply — from 35 percent in 2014 to 58 percent in 2016.

For employer-provided drug benefits, the percentage of plans that charge a flat copay for all drugs has plummeted from 72 percent in 2012 to 46 percent in 2016. And, the share of plans charging a percent of the retail price has soared from 5 percent to 43 percent over the same time span.

In short, don’t expect Cigna to use Express Scripts’ $4.5 billion in profits to lower premiums or drug costs. “As is often the case, when one company buys another, it’s to increase earnings — helping consumers is not foremost in their minds when constructing these deals,” said Larry Levitt, senior vice president for health reform at the Kaiser Family Foundation, in regards to these mergers. “It’s really shareholders that they’re trying to please.”

Members of President Trump’s cabinet, including Food & Drug Administration chief Scott Gottlieb, have singled out this bizarre drug pricing system as the driver of higher health care costs. But the president himself has kept his blinders on. It’s this Kabuki theater drug pricing that needs to be addressed, not the largely irrelevant prescription drug list prices that are a mere symptom of it.

Dr. Robert Goldberg is vice president of the Center for Medicine in the Public Interest. CMPI receives funding from biopharmaceutical companies, foundations, and individuals.

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