In the era of COVID-19, states need practical solutions to address health care costs

The vast human and economic devastation of the coronavirus is evident in the numbers: more than 100,000 American lives lost, 1.9 million infected and a national unemployment rate of 13.3 percent. While the curve appears to be slowly flattening, it goes without saying that the fallout will be substantial, particularly for states and communities.

When it comes to overall health care spending, COVID-19 will further exacerbate already strained state budgets, particularly as millions of Americans shift from commercial insurance to Medicaid. Recent analyses by multiple think tanks indicate that tens of millions of Americans could lose their employer-sponsored health coverage. Directly and indirectly, this shift puts the onus on states to find savings without cutting benefits.

The first priority is, of course, supporting biopharmaceutical scientists who are working to produce treatments and a vaccine that will save lives and alter the trajectory of COVID-19. However, we also have the opportunity to seek improvements in the broader system that patients, businesses and government rely upon. For Americans of all ages, this begins with reducing cost wherever it exists.

One straightforward example is rethinking the role of pharmacy benefit managers (PBMs), health insurance middlemen that exist to negotiate drug pricing between drug manufacturers, health plans and pharmacies. PBMs have historically played an important role in controlling costs, particularly at the pharmacy counter. But they have been criticized in recent years for engaging in a number of backroom business tactics that result in higher costs for patients, negotiated rebates going directly to a PBM’s bottom line, financial strain for many independent pharmacists and drug formularies that lead to unnecessary access restrictions for patients.

Herein lies a unique option: requiring that PBMs become pharmacy benefit administrators (PBAs), which would give these companies fiduciary responsibility and make them accountable to the plans — and patients — that they serve.

Over the past few years, several states have introduced legislation to hold PBMs accountable, bolster state budgets and help make it easier to pass savings along to patients. New Jersey passed and implemented a reverse auction that is saving the state $2.5 billion over five years. Maryland passed a similar bill in the past several weeks. In 2018, I worked with Secretary Azar to develop a proposal that would have delivered the most meaningful change on drug costs in decades. This remains important and states need this now more than ever.

How would a PBA model work? For starters, it would automatically rid the system of rebates that are driving up costs at the pharmacy counter, and convert them to savings for consumers and employers. Research published recently by the USC Schaeffer Center for Health Policy & Economics suggests a $1 increase in rebates is associated with a $1.17 increase in list price. Consider the example of Humalog, a popular insulin medication: on average, the monthly net price (the real-world cost) for the drug was $135 per patient in 2018 compared with an average list price of $594. There is little reason to doubt that most patients would pay closer to the net price if their insurer used a PBA.

Improved access is another likely result. A recent bipartisan letter asked Secretary Azar and Administrator Verma why only six percent of patients with high cholesterol could get PCSK9s for a copay less than $50. A recent Avalere analysis shows the situation may be improving as one-third of all Medicare Part D beneficiaries can now find these drugs on the preferred brand tier. But when drug companies lowered the list price of PCSK9s by 60 percent, many Part D plans moved these drugs to non-preferred tiers, which often cost patients more money.

Finally, PBAs wouldn’t be incentivized to negotiate deals that would favor one company or treatment just because of market share or sheer patient volume. Just the opposite, formularies would better reflect the latest innovation that we’re seeing across a number of disease areas, including cancer, diabetes and rheumatoid arthritis. Makers of these treatments would compete on offering the greatest efficacy with the fewest side effects at the lowest net cost.

Democrats and Republicans deserve credit for working together to lower out-of-pocket costs. As COVID-19 creates a new set of challenges and opportunities for our health care system, particularly in the states, the one change that would benefit just about everyone who purchases medicines — individuals, companies, state governments, and many others — begins with a new approach for PBMs. We can all agree that breakthrough innovation doesn’t belong in a system where the middleman adds cost. Not anymore.

John O’Brien is a pharmacist and senior fellow at the USC Schaeffer Center for Health Policy & Economics. He does not receive money from companies making the drugs mentioned in this article nor the trade groups who represent them.


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