A Senate committee is trying to get the answer
A Senate committee hearing this week once again delved into the issue of high-priced prescription drugs – in this case, one class of drugs in particular.
Sen. Bernie Sanders (I-Vt.) noted that Novo Nordisk’s weight loss drug Ozempic sells for $969 a month in the U.S. but for $155 in Canada, $122 in Denmark, $71 in France and $59 in Germany.
“What we are dealing with today, is not just an issue of economics, it is not just an issue of corporate greed,” Sanders said. “It is a profound moral issue.”
Novo Nordisk CEO Lars Jorgensen told the committee that the price discrepancy was largely out of his company’s hands and had more to do with how different countries manage healthcare. So, ConsumerAffairs decided to consult a couple of experts who are familiar with how prescription drugs get from the laboratory to consumers’ medicine chests.
Michael Grosberg, vice president of Product Management at Model N, which assists healthcare providers, and Sam Tejada, author of “How To Win in Modern Wellness,” both say that a major difference in U.S. drug prices and the rest of the world has to do with economics.
‘Multi-layered system’
“Unlike many other countries, the U.S. lacks centralized price negotiations for all patients,” Grosberg told ConsumerAffairs. “Instead, we have a multi-layered system involving pharmacy benefit managers (PBMs), insurers, and pharmacies. While designed to manage costs, this system often leads to a phenomenon called the ‘gross-to-net bubble.’ Essentially, list prices for drugs keep rising, along with rebates negotiated by PBMs, but these savings don’t always translate to lower costs at the pharmacy counter.”
“The U.S. operates under a free-market system where drug prices are negotiated between manufacturers and payers – insurance companies and pharmacies, Tejada said. “In contrast, in many other countries, governments negotiate directly with pharmaceutical companies to set drug prices and impose price controls, often resulting in lower prices.”
But is the free market system really responsible for all of that price disparity? Could the role of PBMs lead to higher costs, as some critics have charged? Grosberg says PBMs play a “paradoxical” role in drug pricing.
The role of PBMs
“On one hand, they negotiate rebates from drug manufacturers, potentially lowering costs for insurers and some patients,” he said. “On the other hand, the complex and often opaque nature of these negotiations can contribute to higher list prices and doesn’t always result in savings.”
Tejada says PBMs can contribute to the overall cost of drugs in several ways.
“PBMs act as intermediaries between drug manufacturers, pharmacies and insurance companies,” he told us. “While they negotiate drug prices on behalf of insurers, they often receive rebates from drug manufacturers, which are not always passed on to consumers. The details of these agreements can be complex and not fully transparent. This lack of transparency can lead to higher list prices. Additionally, these rebates can incentivize PBMs to promote more expensive drugs, leading to higher overall costs.”
For example, if a cheap drug and an expensive drug are equally effective for a patient, the PBM has a financial incentive to promote the more expensive one because it may receive a larger rebate.
“PBMs also control which drugs are covered under insurance plans and at what tier,” Tejada added. “Sometimes, they may prefer more costly medications over cheaper alternatives due to rebate agreements, which can raise costs for consumers.”
As middlemen, PBMs can add another layer of administration, which can add to costs. So, are there ways that PBMs can be beneficial? Grosberg says PBMs were initially conceived to positively affect the U.S. drug distribution system by managing prescription drug benefits for insurers and large employers, improving efficiency in the supply chain.
“However, the reality is more nuanced,” he said. “While PBMs can help reduce costs for some patients and payers, their role has become increasingly controversial. The lack of transparency, potential conflicts of interest and the complex rebate systems they manage have all come under scrutiny.”
Tejada says if PBMs operate as they were intentionally conceived, then yes, they can be a positive influence. “PBMs develop formularies that guide prescribers and patients toward more cost-effective medication options,” Tejada said. “This can help in managing overall healthcare costs by promoting the use of generics or lower-cost alternatives.”
PBMs point a finger at Big Pharma
For the record, the Pharmaceutical Care Management Association (PCMA), the PBM trade group, lays high prescription drug prices squarely at the feet of Big Pharma. In the case of Ozempic and similar GLP-1 drugs, the association said PBMs are trying to arrange coverage of these drugs but that pharmaceutical companies are keeping U.S. prices high.
“The Senate Committee dispelled the myth from Big Pharma that PBMs prevent price reductions by excluding life-saving drugs from formularies,” PCMA said in a press release. “In reality, PBMs would welcome lower list prices and would continue to provide the same coverage options, and have committed to doing so.”
In the wake of the hearing, three major PBMs released a statement saying that if pharmaceutical companies lowered the prices of weight loss drugs, it would make them more available in the U.S.
This article was originally published on ConsumerAffairs.
