According to recent polls, Americans rank health care as their most important policy issue. President Trump reflected this concern in his State of the Union address, saying his “next major priority” is “to lower the cost of health care and prescription drugs — and to protect patients with pre-existing conditions.”
A new rule introduced last week by the Department of Health and Human Services would strike at the root of rising prescription drug costs that are disproportionately hurting those with pre-existing conditions.
The rule would eliminate the hundreds of billions of dollars of kickbacks, euphemistically called rebates, that prescription drug purchasers known as pharmacy benefit managers (PBM) demand from manufacturers in return for access to Medicare and Medicaid insurance plans. (Similar reform to private plans requires congressional action.)
Currently, the government provides PBMs a “safe harbor” from the Anti-Kickback Statute in the Medicare Protection Act. This has allowed PBMs to turn drug channels into a pay-to-play arrangement. By removing the safe harbor, the HHS rule will allow rebate funds to directly offset the costs of prescription drugs. (A similar safe harbor exists for group purchasing organizations, which control hospital supply purchases and have been blamed for persistent drug shortages.)
To understand the impact PBMs have on prescription drug costs, consider the price of insulin. As a pediatrician, I hear the struggles of my patients and their families to pay for this vital drug. At a Senate Finance Committee hearing on drug prices that I attended last month, Kathy Sego of Indiana testified about how her son’s insulin cost her $1,700 a month, and her son rationed his supply. Antoinette Worsham of Ohio testified at a House hearing the same day about her daughter’s tragic death due to this growing trend of insulin rationing.
Indeed, the list price of insulin — a drug that has been around for about a century — has risen by 500 percent over the last decade, causing immeasurable suffering for countless American families. Yet, over that same timeframe, net insulin prices — after subtracting manufacturer rebate payments to PBMs — have stayed essentially flat, according to multiple analyses.
These billion dollar kickbacks are responsible for the discrepancy between skyrocketing list prices and flat net prices. According to a 2017 Berkeley Research Group study, rebates now make up about one-third of list prices. They have more than doubled over the last decade. To pay for them, manufacturers increase list prices. In contrast, according to SSR Health, net prices actually declined by more than five percent in 2018, with numerous drugmakers disclosing this year that they’ve lowered net prices. The HHS rule seeks to do away with this “Kabuki drug pricing” system.
PBM supporters such as House Speaker Nancy Pelosi argue that kickbacks defray health care costs. It’s true that most rebates are passed onto health insurers, which use them to lower average premium costs for insurance plans. While the healthy see their premium costs negligibly reduced as a result of this scheme, it comes at the expense of the sickest patients with chronic diseases who have to pay higher prescription drug prices as a result. PBMs benefit from this set up with revenues that can exceed manufacturers’.
Even if patients have insurance coverage, they must pay inflated list prices before they meet their deductibles, and then their subsequent co-pays are a function of these list prices. The patients with pre-existing conditions — such as diabetes, cancer, hypertension and premature birth, as well as those who are more prone to hospitalization — are hurt the most by this status quo that amounts to a tax on the sick for the benefit of the healthy.
While this topic is certainly wonky, there’s growing recognition — as evidenced by the HHS proposal — that kickbacks are the culprit for rising prescription drug costs. Sen, John Cornyn, Texas Republican, spoke for many when he asked at the Senate hearing, “Can anybody on the panel explain to me why we have a general prohibition against kickbacks, call them ‘rebates,’ under the Social Security Act, but we nevertheless allow it for prescription drug pricing?”
Across the aisle, Sen. Ron Wyden, Oregon Democrat, said last week that he has complained “for years” that “middlemen have no accountability and consumers don’t see any savings at the pharmacy counter.” This is a bipartisan effort that Speaker Pelosi should embrace.
Unfortunately, the prescription drug reform fight has become polluted with outside interest group money, so people discount opinions as bought and paid for. That’s why I urge patients and my fellow physicians to embrace the bipartisan goal of reducing drug costs for all Americans — especially the sickest among us — by supporting this HHS rule and further calling for a congressional repeal of kickbacks for PBMs.
• Marion Mass is a Philadelphia-area pediatrician and the co-founder of Practicing Physicians of America.
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