Drug Prices Are a Mess and We All Pay for It
Pharmaceutical companies are clearly involved in this: Heroic toenail ads don’t come cheap when sandwiched between Super Bowl plays, as does a certain Wu-Tang album. But many of the most expensive drugs are available for free if you have a coupon. Something is wrong here.
When you get a “free” prescription for an expensive drug, the manufacturer will cover the cost of your co-pay. They give up that share of the profits so they can charge your insurance company for the rest. In fact, they make so much money from these transactions that they can afford to distribute the drug to needy patients who do not have insurance.
In other words, in the insane world of drug pricing, coupons, charities and cheap copays are all part of the mechanism that keeps prices high. Still don’t understand? Here’s what’s going on.
If you get something for free, you are not a buyer.
Let’s take a closer look at the drugs sold in Super Bowl ads because they are great examples of this strategy.
The drug: Jublia (efinakonazol) of nail fungus on the feet . Seller: Valeant Interesting facts: Treatment takes about a year and works in 15-18% of cases . Price: $ 642 for a 1-2 month supply for one toenail. You pay (with coupon): Zero dollars with commercial insurance!
Drug: Xifaxan (rifaximin) for Irritable Bowel Syndrome with Diarrhea (IBS-D) Seller: Valeant Interesting fact: It works 40% of cases , relieving abdominal pain within a 2-week course and continuing to act thereafter for 10 weeks. … At this point, you are back to where you started. Price: $ 2206 You pay (with coupon): Zero dollars with commercial insurance!
Drug: Movantik (naloxegol) for opioid- induced constipation . Sold by : AstraZeneca and Daiichi-Sankyo. Fun fact: Side effects can include opioid withdrawal and bowel perforation. The cure rate is 44% . Price: $ 340 per month. You pay (with coupon): Only $ 20 per month with commercial insurance!
Thus, the patient receives these drugs for free and the insurance company pays. The pharmaceutical company, of course, advertises to the patient. This puts the insurance company in the same position as a parent whose child asks for Froot Loops, except that Froot Loops cost hundreds or thousands of dollars and the child could literally die without them.
It’s a win-win game. Coupons are illegal for public insurances such as Medicare because they are considered kickbacks : the pharmaceutical company pays patients for the government to spend. But private insurers cannot derogate from this law. “Insurers cannot afford to give up expensive drugs if they are prescribed according to the plan and the patient needs them,” said Claire Crusing, a spokesperson for the America’s Health Plans trade group. In any case, the coupon transaction is between the pharmaceutical company and the patient – even if they wanted to, the insurer had nowhere to intervene.
Whether there is a coupon or not, the high prices baffle both private and public insurers. The Oregon Health Department wrote in a report that treating every Medicaid patient with the best hepatitis C drug (price tag: $ 95,000) will cost more than the state’s entire pharmacy budget. So they and 33 other states only prescribe it to patients who already have liver damage , even though the drug prevents this damage when used previously. This rationing is illegal , but what choice do they have?
It’s nearly impossible to know how much drugs actually cost
When I wrote about Addyi , a “female Viagra” with all its flaws, Valeant’s PR people refused to tell me how much Addyi actually costs. All my inquiries by email and by phone resulted in either pointing to their coupon-like program or silence. (Be that as it may, we now know the price isaround $ 800 a month.) It is simply not in the best interest of pharmaceutical companies to clearly state how much a drug costs.
And even when you know the list price of a drug, it doesn’t tell you how much someone is actually paying. Here’s how Turing executive Nancy Retzlaff described the price of Daraprim , a drug that Martin Shkreli raised to $ 750 per pill:
Rep. Welch: If Springfield Hospital in Vermont wanted to buy Daraprim, how much would they pay you?
Miss Retzlaff: So we introduced a hospital discount program –
Representative Welch: Yes, give me the number. What will they have to pay?
Miss Retzlaff: That is for a bottle of 100 pieces it will be about 35 000 dollars. For a 30-piece bottle, that would be $ 11,000 [reflecting a 50% discount].
…
Rep Welch: What if I had a Blue Cross Blue Shield and it was covered? How much will Blue Cross Blue Shield pay?
Ms. Retzlaff: It will depend on what the co-payment and co-insurance was. About 25% of patients taking Daraprim have commercial insurance. … So the patient is asked to pay a copay of, say, $ 5,000, and we pay that copay so they don’t have to pay more than $ 10 out of pocket.
Rep Welch: What if they were on [Medicaid]? How much will this pill cost?
Ms. Retzlaff: Medicaid patients as well as 340B patients can get the drug for the price of one penny per pill. And that actually accounts for two-thirds of Daraprim’s business.
Rep Welch: So who pays the rest if the patient gets it for one penny?
Miss Retzlaff: This is the price. Nobody pays.
…
MP Welch: Most people have no idea what the real cost will be after you complete the gymnastics you just described.
Miss Retzlaff: Right. This is how pharmaceutical pricing works in the industry.
In her example of a patient with commercial insurance, the cost of a 30-pill bottle minus a $ 5,000 co-payment is $ 17,500. This is assuming the insurance company does pay $ 750 for the pill without negotiation, but they negotiate lower prices . So the actual price paid is still a mystery.
Martin Shkreli is not the problem. This is the whole system.
We have our favorite villain in the drug price debacle, and this is the guy who grins, says inflammatory things, and feudes with rappers . But it really doesn’t matter. Do you know how to tell?
- Shkreli is no longer CEO of Turing , but Turing hasn’t cut the price of Daraprim since he left . The price (whatever that means) is still $ 750 per tablet.
- Shkreli was arrested, but not for gouging prices . It was completely legal.
Crazy about high drug prices? Get a batch of these nine drugs , all of which cost six figures or more per year. Check out Valeant’s track record of buying and overpricing drugs – not just once, but repeatedly. Note that two of the three Super Bowl commercials advertised the expensive new Valeant drugs.
Damn it, Shkreli, you drew attention to drug prices and then left and took most of the attention with you. In today’s Google News, you can find more stories by searching for the single word “Shkreli” (look, Ghostface Killah made a video about it! ) Than on the whole question of “drug prices.” (A trade deal could undermine drug price control efforts – typical … yawn … better outcome.)
Legislators don’t understand this either. Interim CEO Valeant attended last week’s Congressional hearings but was not a headliner. The representatives first focused on Shkreli, who was silent, and then moved on to Retzlaff, the commercial director of the former Shkreli company. And on a few occasions, the reps finally came up with the right question – are n’t insurance clients and taxpayers paying bills for these scams? Retzlaf gave an insanely correct answer: Daraprim has only 3,000 patients. The price for any person is a penny.
This is infuriating and right, because the entire pharmaceutical industry plays the same games. Daraprim may cost pennies, but the total cost of “specialty” drugs – mostly expensive – was $ 311 per commercial insurance participant in 2014, according to a report by Express Scripts, which administers pharmacy benefits .
Prices are rising for tons of drugs . The increase in drug prices is at least 13% of the reasons for the increase in insurance premiums in the plans for 2016 . (It is unclear if hospital categories include hospital-administered drugs; if so, drug costs account for an even larger percentage.)
The Pharmaceutical Industry Group points to data showing that cost increases this year are actually lower than in previous years . It’s true, but it’s a math trick: the problem is getting worse, but we should be glad that it gets worse a little more slowly. Simply put: In 2014, list prices for medicines increased by 13.5%. actual costs increased by 5.5%. Inflation was only 0.8% .
Some of you are probably already jumping to the comments to tell me that drug prices must be high. Okay, but how high? It will take an entire article to fully discuss where drug prices come from, so I’m going to recommend this article from Forbes , which explains in detail which of the frequently cited reasons are true and which are false.
In short, the author says that this is not for direct reimbursement of R&D costs; these costs are irrecoverable, and the point is simply to keep the company profitable with its overall costs. (After all, the price of a medicine does not drop once a certain amount of research and development is done.) Second, it’s not because of the “value” of the medicine. Countries that actually estimate the cost of a year of human life have cheaper medicines than we do. (They refuse to pay if the cost of a “ quality- adjusted life year ” exceeds what they have specified.)
Basically, pharmaceutical companies take whatever they can get away with.
There is no easy solution
This is the part where I should advise you to contribute in a small part and agitate for changes that will fix the problem permanently. But I can not. I’m not myself here, and it worries me that the legislators are too.
First, about these coupons – I won’t tell you not to use them. If you need a medicine and can get it for free, use it while you can. (But be sure to read the small print – some are only suitable for a certain number of fillings, and the program may disappear at any time.)
What helps a little is not “asking your doctor about brand name drugs.” Some medications are unnecessary or don’t work (hello Addie) or generics are just as good. If the ad opens your eyes to the possibility that I do have a problem that Big Pharma can solve, ask your doctor, but make it a real question. Not the demand for what you saw on TV, but rather, “Is the drug the best approach to this?” and “Is this hot new drug better than the old one?”
Real change is likely to require government action. It helps that the FDA is now able to approve generic drugs much faster than it used to (although it has a huge lag). Another proposed solution is to allow patients to import drugs from Canada , essentially outsourcing price control laws that we do not want to pass ourselves.
But the system is not working yet. I think fill out your scripts at Costco ? And try not to get sick.