Mandated Listing of Pharmaceutical Prices Would Worsen American Healthcare Crisis
October 25, 2018
Congress has faced the same question about what can be done about high drug prices for decades. Recent policies, such as lowering regulatory barriers to drug approval, have already yielded results and begun to lower prices. Other ideas, such as expanding the use of tax-free savings accounts and reducing insurer mandates, hold additional promise for injecting market forces into the American healthcare system to bring down costs.
But not all Trump Administration ideas to restore sanity to the healthcare system would be beneficial to consumers. One recent proposal would prove particularly counterproductive in bringing down prices despite hype by some “reform” advocates. On October 18, the Center for Medicare and Medicaid Services (CMS) released a proposed rulerequiring drug makers to feature pharmaceutical prices in direct-to-consumer (DTC) television ads. Sen. Richard Durbin (D-IL) tried to insert a similar proposal into the Defense-Labor-HHS-Education appropriations “minibus” package, but the amendment was ultimately withdrawn.
On the surface, showing the list price – or the price a drug manufacturer initially sells a drug for — seems harmless and could help to increase system-wide transparency. But that’s assuming the healthcare system is a simple manufacturer-to-consumer market, akin to television or grocery sales. As anyone who must make regular pharmacy visits can attest, nothing could be further from the truth.
Featuring the price in advertisements would misinform patients as to the true cost of their prescription. The truth is that consumers very rarely pay list price for a medication for a number of reasons. For example, most patients pay for a prescription only after paying a co-pay or co-insurance or receiving assistance from a government program. Even for patients without insurance, websites and programs offer similar buy-in-bulk leverage typically granted by insurers. The price these patients pay, then, is dictated by their insurance company or another middle-man, after insurers and pharmacy benefit managers (PBMs) have received considerable rebates and discounts.
Example Drug: Neulasta
Price of Drug in advertisement (wholesale acquisition cost): $6,200
Typical Medicare payment: $4,600
“Bronze” health plan co-pay for patient: $500
“Silver” health plan co-pay for patient: $25
These prices vary, often greatly, (see above example) because insurers and PBMs are often not directly held accountable to patients as they negotiate prices and take a piece of the profit at the same time. These issues are exacerbated by the Affordable Care Act (Obamacare), which regulates insurers like utilities and insulates them from market pressures that service providers in other industries must face. Most patients are unaware of these regulations and have little idea as to how much medication prices were dictated by these middlemen.
Pharmaceutical pricing is overly complicated, in ways that drive up costs even more. And, advertising the list price would only further obfuscate the true drivers of cost in our healthcare system, leaving patients less informed than if we sought real transparency and accountability from actors such as PBMs.
Consider the implications of patients seeing a list price far in excess of what they could ordinarily secure the medications for. Vulnerable patients depending on lifesaving drugs might be deterred from obtaining a refill of an expensive drug, exacerbating America’s already large problem with refills going unfulfilled. The opposite problem of the Opioid crisis.
While many sectors have subsidies, carve-outs, and tax loopholes that reduce prices for products, no lawmaker or official has seriously suggested before that consumers should see prices pre-subsidy. Imagine the response lawmakers would get if they decided that, instead of removing agricultural subsidies, they simply decided to show consumers hypothetical prices absent subsidies. This would be rightly lambasted as the worst of all worlds, by devoting the same resources to maintaining loopholes and subsidies while undermining the policies’ goals of affordability and less sticker shock.
Though the Trump Administration has the best of intentions, CMS’s proposed rule ensures that the rebates, discounts, and reductions negotiated endlessly amongst governments, bulk-buyers, and pharmaceutical companies would become useless. Onerous list price mandates will only undermine the goal of affordable healthcare and create implementation and documentation hurdles that would be passed along to consumers.
Due to these unintended consequences, Secretary Azar should nix this misguided effort and instead seek real, comprehensive solutions that tackle the true drivers of cost in our healthcare system.