The FTC alleged that Express Scripts “artificially inflated the list price of insulin drugs by using anticompetitive and unfair rebating practices, and impaired patients’ access to lower list price products, ultimately shifting the cost of high insulin list prices to vulnerable patients.”
This is a big win – and not just for patients who use Express Scripts. The agreement helps accelerate the trend towards a more patient-friendly payment system.
Three PBMs – Express Scripts, CVS Caremark and Optum – process nearly 80% of all prescription claims in the country and have significant influence over the consumer price of medications.
The broken payment system they helped establish makes drugs less affordable at the pharmacy counter, and the recent settlement will likely upend this system to the benefit of all patients.
PBMs traditionally manage insurer drug formularies and negotiate discounts with drug manufacturers on behalf of insurers. Drug formularies are the list of drugs that an insurer covers, determining which drugs patients can access and how much they will pay.
Millions of Californians are paying more out of pocket for prescription drugs because PBMs have too much control over drug formularies and patients don’t have a clear picture of the true cost of drugs.
PBMs traditionally earn more money when medicines’ list prices are growing rapidly, which enable even higher negotiated discounts that pad the profits of PBMs or their insurance sister company – and this is precisely what has happened.
In the past 15 years, list prices for drugs grew between 10% and 15% annually. While the growth in list prices has slowed recently, the list prices of drugs have still outpaced overall income growth.
Over this same period, PBMs negotiated even larger discounts from these list prices. These discounts have been so large that the net prices of medicines –what manufacturers receive once all discounts and rebates have been paid – have been declining for the past eight years.
Why have the prices paid to drug manufacturers been declining for many years, while patient costs have been increasing at the same time?
The answer: PBMs.
Patients do not benefit from these negotiated discounts because their out-of-pocket costs are based on the fast-rising list prices. As list prices have been rising excessively to accommodate the large discounts paid to PBMs, consumers have been stuck with the tab.
PBMs say that they pass the discounts along to insurers. But PBMs and insurers are often the same companies. Patients don’t benefit if the money is deposited in a company’s left pocket or its right pocket.
Lack of transparency is another problem. Sure, politicians love to cite list prices when claiming drug prices are out of control, but the actual prices received by the manufacturers are far less known. Markets don’t function well when prices are not transparent, which is why patients are stuck with a costly and broken system.
This is where the Express Scripts settlement could be a true game changer for patients.
Express Scripts has agreed to stop preferring high list priced drugs on its formularies, to base members’ out-of-pocket expenses on a drug’s net costs, and to increase transparency for plan sponsors. Under the agreement, the PBM will also stop the practice of spread pricing and other anti-competitive practices.
Overall, the settlement will meaningfully address the core problems that are excessively inflating the costs that patients must bear. It will help patients live longer, healthier lives by giving people access to vital drugs at more affordable prices.
While the agreement is between the FTC and Express Scripts, its impact will reverberate through the industry due to the PBMs’ sheer size. Consequently, patients’ costs will more accurately reflect actual (and transparent) market-based drug prices.
The medicines we rely on to keep us healthy will be more affordable and more accessible as a result. And that’s exactly what effective healthcare reform should achieve.
Sally C. Pipes is president, CEO and Thomas W. Smith fellow in health care policy at the Pacific Research Institute and Dr. Wayne Winegarden is PRI’s Senior Fellow, Business and Economics.