The following op-ed was authored by PhRMA president and CEO Stephen J. Ubl and published on Forbes here on June 2, 2017.
The way our health care system currently pays for prescription medicines is convoluted and confusing. We rely on a complicated system of list prices, net prices, rebates and an opaque supply chain that often results in uncertainty and frustration for patients. It is no wonder consumers and policymakers have questions and are looking for better answers. So are we.
In many respects, our current marketplace for medicines works for patients. Insurance companies and pharmacy benefit managers (PBMs) are powerful, sophisticated purchasers who use their leverage to negotiate steep discounts off the list prices of medicines. According to one recent report, after factoring in negotiated discounts and rebates, prices for brand medicines increased just 2.5 percent in 2016 and total spending on medicines increased just 3.4% last year.
Yet too often these negotiations focus solely on the size of the rebate and not on rewarding the best value for patients. A recent study funded by PhRMA and conducted by the Berkeley Research Group found, on average, more than a third of the initial list price of a medicine is rebated back to insurance companies, PBMs and the government, or retained by other parts of the biopharmaceutical supply chain. And the gap between list prices and net prices is growing every year as more of medicine costs are being retained by middlemen in the system.
To address this, our reimbursement system needs to evolve to better recognize and reward value. Not all patients are alike, and they do not all benefit equally from each medicine. We need to make sure our payment system for medicines reflects these differences.
Our current market is already starting to move in this direction. Biopharmaceutical companies are working with private health insurers to implement new payment arrangements for a variety of diseases. For example, cancer medicines may work better for patients with one type of cancer than those with another. Under these new arrangements, prices and rebates for the medicine could differ based on the type of cancer a patient has or how well an individual responds to treatment. Companies are also considering new ways to pay for treatment when a patient needs multiple high-priced innovative medicines and experimenting with money-back guarantees if a medicine does not work as intended.
However, public policy reforms are needed to speed adoption of new payment models. We need to remove policy barriers that restrict how much information biopharmaceutical companies can share with insurance companies about the potential benefits of a treatment. We also need to reform outdated, unclear regulations that discourage companies from offering discounts that are tied to outcomes, rather than volume. And we need to modify existing Medicaid best price requirements that inhibit companies from taking on more risk in new payment arrangements.
Advancing these types of commonsense policy solutions will help ensure we get the right medicine to the right patient at the right time – improving care and saving costs across the health care system.
In addition to focusing on what payers pay for medicines, we must also focus on what consumers pay. Any discussion about value must include recognition of the shared responsibility to make sure patients actually get the medicines they need.
Not only can value-based payments save health care system costs, but they can make medicines more accessible and affordable for patients. In exchange for taking on more risk for the outcomes achieved by the patient, biopharmaceutical companies may negotiate preferred formulary placement for those medicines, which come with lower copays and coinsurance for patients.
We also need to ensure patients receive more of the benefit of price negotiations between biopharmaceutical companies and payers. Unlike care received at an in-network hospital or physician’s office, health plans continue to require patients with high deductibles or coinsurance to pay cost sharing based on the undiscounted list price, rather than the discounted price. In fact, a new PhRMA-commissioned analysis by Amundsen Consulting found that more than half of patients’ out-of-pocket spending for brand medicines is based on the list price of the medicine, even though their health insurance company may be receiving a steep discount.
With the difference between list prices and net prices continuing to grow, patients’ cost sharing for medicines is increasingly based on prices that do not reflect the actual costs. For example, a patient in a high-deductible health plan who pays the list price each month for insulin may be paying hundreds—or even thousands—more annually than their insurer.
This needs to change. Insurance companies should be required to pass on more of the discounts they receive to patients in the form of lower out-of-pocket costs, just like they do for other types of health care services.
We believe these changes will go a long way toward rewarding value in our health care system and making health care more affordable for patients.