President Biden’s address last night highlighted a long list of “health care” proposals he’s planning in a second term that will exacerbate the very problems he purports to solve.
For example, he wants to increase to 50 a year—from the current cap of 20—the number of prescription drugs the federal government can target with its take-it-or-suffer-the-consequences price controls. Either the drug companies play along and accept the government’s price or they face a confiscatory excise tax that eventually reaches 1,900% of a drug’s daily revenues.
The impact on patients will be significant as investment dries up and pharmaceutical companies pull promising drugs from the research pipeline. The president’s Cancer Moonshot already is becoming a casualty.
Biden’s sound-bite proposals obscure the incredible complexity of the distortions that government policies create. Ditto with his plan to extend Medicare’s $2,000 annual cap on out-of-pocket drug costs to people with private insurance. Premiums will soar.
State and local governments are expressing their outrage over high drug prices by embarking on a shakedown of the pharmaceutical industry with a rash of lawsuits against insulin manufacturers and Pharmacy Benefit Managers (PBMs). They say they conspired to drive up the cost of insulin for patients and these employers. Arlington County, Virginia, for example, produced a dramatic graphic showing a 1,527% increase in insulin prices over the last 20 years.
Obscure drug pricing is a lush buffet, ripe for middlemen to take a generous helping, and state and local governments are regular diners.
As large employers, these governments participate in a system of kickbacks that have filled their coffers for years. They sign contracts with private companies to manage the prescription drug part of their employee health plans and get rebates—aka kickbacks—on preferred drugs.
The PBMs put high list prices on drugs for the contracts they manage so they can give huge rebates to their government customers.
Enter the new $35 cap on out-of-pocket costs for insulin that are squeezing out the rebates. This new settlement money could fill the spending appetite created by the loss of billions of dollars of tobacco and opioid settlement money.
But here’s one problem: The very governments that signed these contracts participated in the scheme as PBMs inflate the list prices in their contracts to give bigger the rebates.
And there is a problem of facts. Sanofi’s sales data demonstrates that net prices for its insulin have actually fallen 58% between 2012 and 2022.
Dan Leonard, a guru in this space, explains in a piece for Law360, “Suits against insulin pricing are driven by rebate addiction.” (It’s behind a paywall, but I can send you a summary if you reply.)
“As recently as two weeks ago on Capitol Hill, drug company CEOs testified that up to 90% of their list prices were rebated back to the middlemen. That money in the middle is going somewhere, and it’s not to the patients who have seen their out-of-pocket costs rise during
the same time frame,” Leonard writes.
One drugmaker called the PBM’s bluff. “In 2021, new ground was broken with the approval of the first interchangeable biosimilar insulin. Instead of launching the new insulin with a dramatic price reduction, the manufacturer, Viatris Inc., opted to launch two versions of the same medicine,” he writes.
“The first unbranded version was priced at 65% less than the competitor, while the second branded version was launched at only 5% less, but with far greater rebates.
“Question: Which product was carried on more PBM formularies and therefore available to more patients?
“Answer: The high-price, high-rebate version.”
Patients should be outraged at these innumerable behind-the-scenes shenanigans. Sadly for them, their co-pay is often based upon the high price that makes the headlines.
There is little or no correlation between the published or list price of a medicine and the actual price paid by the employer or insurer.
And this vast system of rebates is what the local government were participating in when they contracted with the companies they are now suing.
Penalizing drugmakers means they will be less likely to invest hundreds of millions of dollars and decades into research and development, leading to fewer treatments,” writes Joel White of the Council for Affordable Health Coverage writes in RealClearHealth. “That means people will be sicker, and costs will go up, not down.”
Former White House Economist Tomas Philipson estimates patients will see 135 fewer drugs over the life cycle of drug development, resulting in 330 million lost life years in the U.S. from patients who could have been treated or cured from drugs that were never developed. Investors won’t fund research if there is little chance the company can receive a return. And where does the money the government saves from getting cheaper drugs go? To funding electric cars and other green projects.
We need to pull back the curtain and expose this if we are going to get to real solutions. It starts with transparency about this harmful process.
