Drug manufacturers, PBMs, insurances and their role in the high cost of medications

Drug companies claim they are trapped in a reimbursement system that rewards them for listing high prices.

Sanofi, the French pharmaceutical company, faced criticism for enlarging prices of insulin, however, they blame insurance companies.

A new proposal by the Trump administration seems to promise a change in how drugs are priced, it will have growing rebates and declining net prices that should result in lower out-of-pocket costs for patients. However, Sanofi claims that under the current health care system, the savings will not be passed on to patients with lower co-pays or coinsurance and will affect patients disproportionately.

Pharmaceutical industries are reinforced to sell drugs at a higher cost because pharmacy benefit managers (PBMs) are seeking the biggest discounts possible. Even with pharmaceutical companies setting the list price of a medicine, insurers will determine what patients pay out of pocket.

Drug manufacturers, PBMs and insurers create a supply chain that helps drive drug prices up. The amount a patient pays for a brand-name drug will depend on their insurance plan; the plan’s formulary; the size of their deductible; and the deal the insurance company has worked out with the manufacturer, these are only a few of the factors involved.

When the buyer is the government, there are standard discounts applied. The price Medicare pays for a branded drug is based on the average sales price of that drug. Medicaid on the other hand is better priced: the government insurance program is entitled by law to receive either 23.1% off the manufacturer’s list price or the drug’s largest commercial discount, whichever is lower.

There are virtually no regulations on how drugs are priced. Pharmaceutical companies can select a price based on a drug’s estimated value. Usually, prices go up if a drug works as intended and also if it is the most convenient and effective treatment on the market.

This is an ongoing problem and it is very unfortunate that the most affected are those with medical conditions and with low incomes. It is necessary for the public to speak up about these issues and hopefully a fairer system will be put in place to aid those in need.

• Kimberly Parada

References:

Entis L. Why Does Medicine Cost So Much? Here’s How Drug Prices Are Set. Time. https://time.com/5564547/drug-prices-medicine/. Published April 9, 2019. Accessed April 15, 2020.