The debate around who is responsible for the rise in drug prices is a classic chicken-versus-egg story, in which the two protagonists are the drug manufacturer and the healthcare payer.
Drug manufacturers are pointing the finger at payers as the reason for high drug prices due to their demands for higher discounts (aka rebates). Conversely, payers place blame on the drug manufacturers and claim that higher rebates are essential to keep drugs affordable for patients. No matter the culprit, high drug prices have become a key political issue. According to a report by the US Senate Homeland Security & Governmental Affairs Committee, Minority Office, inflation for the top 20 most-prescribed drugs in 2015 increased 12% on average—approximately 10 times the annual rate of inflation.1
With the intent of lowering drug prices and reducing patient out-of-pocket spend, the Trump administration issued its American Patients First2 initiative, with a pledge to “bring immediate relief to American patients and long-term reform.” Whether this plan actually delivers on its promise is yet to be determined; however, skepticism is justified. For example, the document highlights the Administration’s recent acceleration of the Medicare Part D donut hole closing but fails to mention that only 20% of non-low-income subsidy beneficiaries reach this phase3 to actually reap any benefits. This tempered impact is further illustrated by total annual member liability. Patient out-of-pocket liability for a $500-per-month drug, for example, is reduced by approximately $190 annually, or a 3% reduction off annual drug cost.4
Moving on to future considerations, the American Patients First plan will look at revisiting the safe harbor under the anti-kickback statute for drug rebates. If rebates are determined to be in violation of this statute and deemed illegal, then critical funds used by payers to reduce Medicare premiums would be eliminated, which could result in higher premiums. Furthermore, this endeavor implies a bold assumption that drug manufacturers would equivocally lower drug prices to maintain net parity costs (at a minimum). Yet, in contrast to eliminating rebates, the Bipartisan Budget Act of 20185 increased the mandated manufacturer contribution in the coverage gap from 50% to 70%, in essence placing a greater dependency on rebates to lower drug prices and increasing funds to control premiums.
Only time will tell if these legislative actions will have any meaningful impact on lowering drug prices and improving patient affordability. Early indicators point toward modest improvements and/or contradictory intentions. Drug manufacturers would be keen not to act impulsively but rather proactively by considering variable outcomes of the legislation and scenario-play potential strategies to best compete in a future environment. For example, how does one compete in a payer landscape where rebates are nonexistent, versus one where rebates are shared with members at the point-of-sale? This type of preemptive planning coupled with a watchful eye toward legislative decisions will be required for a successful rapid response strategy.
- US Senate Homeland Security & Governmental Affairs Committee, Minority Staff Report. March 2018. https://www.hsgac.senate.gov/imo/media/doc/Manufactured%20Crisis%20-%20How%20Devastating%20Drug%20Price%20Increases%20Are%20Harming%20America’s%20Seniors%20-%20Report.pdf. Accessed June 25, 2018.
- US Department of Health & Human Services. https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf. May 2018. Accessed June 25, 2018.
- Kaiser Family Foundation. https://kaiserfamilyfoundation.files.wordpress.com/2011/08/8221-understanding-the-effects-of-the-medicare-part-d-coverage-gap-in-2008-and-2009.pdf. September 2011. Accessed June 25, 2018.
- Q1 Group LLC. https://q1medicare.com. Accessed June 25, 2018.
- HR 1892. https://www.congress.gov/115/bills/hr1892/BILLS-115hr1892enr.pdf. Accessed June 25, 2018.