Government Legislation Calls for Greater Transparency in Drug Pricing
The astronomically high prices of drugs in the United States is a national issue.[1] Two in 25 Americans skip a prescribed dose of medicine because they can’t afford the high costs.[2] Over the past five years, the price of the top ten selling drugs have doubled.[3] The price of the top twenty selling medicines are three times higher in the US than Britain.[4] Why are drugs so expensive in America? Unlike other countries, which have a complex regulatory system that controls medicine costs, the United States has an open market system that allows pharmaceutical companies to set drug prices.[5]
Although proponents of the open market system argue that it incentivizes drug companies to pursue innovative treatments in anticipation of future profit,[6] drug companies are given free rein to operate under a veil of secrecy.[7] Last year, legislators in over 30 states proposed bills to deal with the lack of transparency in drug pricing,[8] and, so far, 24 states have passed 37 bills to address inflationary drug costs.[9] Laws addressing drug price transparency have been successful on the state level,[10] and recent congressional efforts have also been making headway.[11] In March 2018, the Health and Human Services Secretary, Alex Azar, promised to lower drug prices for consumers by forcing pharmaceutical companies to provide information about their pricing practices.[12] Congresswomen and men across political lines have supported this initiative, and on October 10, 2018, after approval by the House and Senate, President Trump signed into law the Patient Right to Know Drug Prices Act (“DPA”) and the Know the Lowest Price Act of 2018 (“LPA”).[13]
Both these bills aim to increase drug price transparency.[14] Previously, prescription drug plans would include ‘gag clauses’ in their contracts with pharmacies to prevent pharmacies from informing enrollees when it would be less expensive to bypass their insurance plan and fill prescriptions by paying cash or buying a cheaper generic version.[15] Both bills prohibit this practice by health insurance issuers and group health plans.[16]
Similarly, the LPA extends this provision to Medicare D plans, so that pharmacies working with Medicare D can inform consumers about the price of obtaining drugs and biologicals without health insurance.[17]
On the heels of these two bills, Representative Doug Collins has introduced the Prescription Drug Price Transparency Act.[18] This bill requires a higher level of transparency from pharmacy benefit managers (“PBM”) working with Medicare, Medicare Advantage, Tricare, and the Federal Employees Health Benefits Program.[19] PBM act as a middleman between insurers and patients by processing prescription drug plans for a small fee.[20] PBM originally lowed prices for consumers, but the consolidation of three PBM that dominate 85 percent of the market, has resulted in increasing drug prices for consumers. [21] PBM wield their power by forcing manufacturers to pay rebates to have their drugs covered on PBM formularies.[22] Before the passage of LPA, PBM would employ ‘gag clauses’ to prevent pharmacists from telling patients about cheaper drug options.[23]
Furthermore, although 80% of medications dispensed by pharmacies are generic prescription drugs, there is very little transparency regarding how PBM price generic drugs in federal health programs.[24] This lack of transparency currently allows PBM to pay low reimbursement rates to pharmacies while overcharging federal health programs and pocketing the difference.[25] PBM also currently have the power to dictate the maximum reimbursement rates they will pay pharmacies for drugs—often at below-cost.[26] Although the bill doesn’t propose to establish reimbursement rates, it would give community pharmacies certainty that reimbursement rates will be updated to reflect real-world prices and implement an appeals process to contest below-cost payments.[27] In addition, PBM would need to provide regular updates regarding their drug pricing standard.[28]
The recent upsurge in legislation addressing the lack of transparency in drug pricing is a step in the right direction. Hopefully, this trend continues and the Prescription Drug Price Transparency Act will be passed with broad bipartisan support.
Footnotes
