Experts: We Can Lower Drug Prices

Experts: We Can Lower Drug Prices
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During the 2016 campaign, Donald Trump vowed to rein in rising prescription drug costs, even suggesting that the government get directly involved in negotiating prices. After the recent nomination of pharmaceutical executive Alex Azar to lead the Department of Health and Human Services, the president’s critics are wondering whether the campaign rhetoric was all bark and no bite. While a near-consensus exists that drug prices are a problem, there’s less agreement about the cause, much less a solution.

Enter New Jersey state Senate President Steve Sweeney. Earlier this year, he helped launch the nation’s first online auction to select a pharmacy benefits manager (PBM) to deliver prescription drug benefits to the state’s public employees. The bipartisan solution to alleviate rising drug costs is expected to save New Jersey taxpayers more than $1.5 billion over the next three years -- without any benefits cuts.

Sweeney, the architect of the legislation, headlined a symposium in Washington Tuesday with health-care industry leaders, who offered innovative solutions for improving competition in the pharmaceutical supply chain and lowering the cost of medicine for patients.

The New Jersey lawmaker explained how the Democratic-controlled state legislature joined with Republican Gov. Chris Christie to harness new technology and create what he called an “eBay for PBMs,” resulting in a “victory for state and local budgets and for taxpayers.” Now Sweeney hopes other states will follow New Jersey’s example.

The event, “Examining the Pharmaceutical Supply Chain: From Production to Patient,” was hosted by RealClearPolitics to illuminate the intricacies of today’s system for delivering drugs to the market. Manufacturers, employers, insurance companies, PBMs, and pharmacies all play roles in this complex process, and with different interests at stake. 

Lori Reilly, executive vice president for policy, research and membership at the Pharmaceutical Research and Manufacturers of America, asserted that many of the problems plaguing the current system originate with the discounts and rebates that manufacturers offer in order to incentivize the various parties to offer their drugs. Instead of seeking out the best product at the best price for customers, employers often seek out the drugs with the biggest discounts and rebates, which they can use to lower premiums or utilize in other ways. Reilly stressed that “discounts and rebates should find their way back to the patient” in order to lower drug prices.

In a panel discussion, industry leaders and experts debated the tension between manufacturers, employers, and PBMs and what steps can be taken to streamline the system and deliver better medicines at better prices.

Doug Hoey, CEO of National Community Pharmacists Association, stated that PBMs, as the middlemen in the industry, have the most information in the supply chain but aren’t as transparent as they should be. As a result, pharmacies don’t know what patients are paying and what the pharmacy will be paid after the fact. This “lack of information results in pharmacies contracting without proper information,” and so they “end up in contracts that are financially detrimental.”

Cheryl Larson, incoming president of the Midwest Business Group on Health, provided the employer’s perspective. She also expressed disappointment with the role that PBMs and other middlemen play in the supply chain. In particular, she worries that employers are becoming “addicted to rebates,” which PBMs negotiate with drug manufacturers. What employers don’t realize is that “it’s fake money,” she said. While manufacturers, not PBMs, initiated the rebate concept, it’s now become a mess, according to Larson, who believes employers must exercise more control over their contracts with PBMs to help push down costs from their end. She highlighted a few manufacturers that are beginning to shun rebates and market their drugs at net cost.

Defending the role of PBMs in the marketplace, Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, argued that the blame for rising drug prices can’t be assigned to the supply chain. As he put it: “Mylan didn’t raise price of the EpiPen 400 percent because of supply chain.” Merritt emphasized that PBMs are constantly competing for business and offering lower prices. “The solution in New Jersey was another PBM,” he pointed out. He insisted that PBMs add value; if they didn’t, nobody would use them.

Adam Fein, president of Pembroke Consulting, described the pharmaceutical supply chain as an “incredibly complicated system that few people understand,” including consumers and lawmakers. Fein argued that the burden is on employers to negotiate better contracts with PBMs, though he conceded that PBMs may have some misaligned incentives. Fein also asserted that the industry may be ripe for disruption regardless of whether Amazon enters the market.

Christopher Beach is the editor of RealClearEducation.

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