Health Care Cost Debate: What Now?

Congress has shown it has both the appetite and ability to enact prescription drug pricing policy.

So now we need those of us in the private market to do our part. The historic drug pricing reforms contained in the Inflation Reduction Act (IRA) are unproven strategies, that may result in cost savings for patients while others may have unintended consequences. Regardless, the enacted reforms were only possible because a majority in Congress and the Executive Branch agreed that, for too many Americans, prescription drug prices are unaffordable, and perceived that the market was not addressing the problem. With the industry unwilling to take action on its own, the government finally acted.

For years, prescription drug supply and payment chain participants have pointed fingers and undermined each other and, in the case of drug manufacturers, actively skirted blame for the cause of high drug costs for some patients. Lost in the din of the Beltway blame game is the fact that for tens of millions of patients with insurance there is indeed broad access to the benefits of pharmaceutical innovation at an affordable cost. Put another way: contrary to popular belief, our health care system is not broken – at least not to the extent proponents of more regulation and government involvement in the delivery of care would like you to believe.

So now what?

It is high time that we all step up – drug manufacturers, insurers, hospitals, physicians, employers and the pharmacy benefit managers (also known as PBMs) who negotiate for lower prescription drug costs every day – to do our parts in working toward a better, more accessible path forward for patients. For PBMs, that means continuing to work on behalf of health plans and other payers to help patients receive clinically effective, affordable prescription drugs in the most appropriate setting. This includes negotiating with the drug manufacturers for savings and discounts and helping patients access lower-cost generic alternatives to high-priced brand name drugs. For drug manufacturers, it means continuing to innovate while owning their role as the only organization in the supply chain with the power to set and raise prices – and keeping that pricing power in check. If the passage of the sweeping drug pricing provisions in the IRA are any indication, a “we do no wrong” strategy can only lead to more government intervention in our businesses activities that the private sector has the expertise and scale to do best and most cost effectively.

To that point, a recent report by IQVIA, a respected prescription drug price research firm, demonstrates how the private market operates a highly functional prescription drug pricing system. The key point in the report shows that in 2021, total gross spending on prescription drugs was $776 billion, while total net spending was $586 billion. That represents a $190 billion savings off of list price. In other words, pharmacy benefit managers, PBMs, negotiated discounts off the manufacturer-set sticker price and delivered those savings to health plan sponsors and, ultimately, patients.

Another important data point is this: list prices of patent-protected brand drugs increased by 4.8 percent in 2021, but the actual costs after discounts only increased by 1 percent, much lower than overall consumer inflation and health care inflation – also driven by PBM-negotiated price concessions by manufacturers.

While there remains a lot of heated debate and finger pointing about out-of-pocket costs for prescription drugs, an often-overlooked reality is that for, the majority of patients, the average patient out-of-pocket costs is actually decreasing. According to IQVIA, average patient out-of-pocket costs for retail drugs decreased from $10.14 in 2016 to $9.41 in 2021 – and that’s against a backdrop of increasing manufacturer list prices, including for drugs for which PBMs are not able to negotiate discounts, such as branded specialty drugs where there are no other treatment options and hospital-administered medications.

So, to our partners in the drug supply chain: let’s amplify the ways in which the system is paving the path to innovation and affordability, while acknowledging that we can do better – and come together to lower health care costs, promote greater access, and support innovation. These are not mutually exclusive. They can be achieved. Let’s not lose sight of the patients who are able to thrive rather than survive thanks to the medications that enable them to affordably treat their conditions. Focusing on protecting these patients from high drug prices is our top priority as a PBM industry.

It’s time to wake up to the realization that finger pointing in Washington didn’t prevent the IRA’s drug pricing provision from passing – my gut tells me it did just the opposite. If health system entities continue to resist collaboratively working on behalf of patients to lower drug costs, we may be destined for more government intervention into the private health care system, despite its greater pros than cons.

JC Scott is the President and CEO of the Pharmaceutical Care Management Association (PCMA), the national association representing America’s pharmacy benefit managers, or PBMs.