ALBUQUERQUE, N.M. – Let’s take statin, a prescription drug, as an example. Statin in the USA was 400% higher than UK price, according to a study 10 years ago. Today, the cost of a 30-day supply of statin may range from $130-generic to $360-branded. For cash-strapped employees, that’s a stretch for a prescription drug to maintain cholesterol levels.
But do you know the actual base price of it is much lower? Join me as we dig into the hard truths about prescription costs:
- Who sets prescription drug prices?
- Why do prescriptions cost so much?
- Who profits the most from prescription drugs?
- What are the solutions to high prescription costs?
Watch KC and Jason tackle the truth about prescription costs!
Who sets prescription drug prices?
Prescription drug prices have increased by 1,150%, and patient costs by 182% since 1987. Further, a 2017 study shows prescription drug prices in the USA were substantially higher than in nine other countries. It includes Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the UK.
So, who sets prescription drug prices in the USA that’s way up compared to other progressive nations?
According to a 2016 study, high drug prices resulted from the USA granting government-protected monopolies to drug manufacturers. It’s combined with coverage requirements imposed on government-funded drug benefits.
The study found market exclusivity lets manufacturers set high drug prices. In addition, a similar study shows the high cost of prescriptions is protected by monopoly rights granted by the FDA approval and patents.
Why do prescription drugs cost so much?
- Research and development (R&D): Through the years, people have thought of R&D as one of the causes of the high drug costs. On the contrary, researchers point out otherwise.
They said the R&D costs of pharmaceutical companies do not justify the high prices of USA drugs. Instead, USA pharmaceutical companies charge higher prices than other western countries that spend globally on R&D.
It’s plausible, though, to consider R&D as one of the high drug cost factors. Pharma companies need to recover the costs of developing the drug through trial and error. Besides, they need to make a profit out of it.
- Patent and patent evergreening: Pharmaceutical companies receive exclusive rights through patents for as long as 25 years. As the business goes, other drug manufacturers make generic versions at lower prices.
The thing is, some pharmaceutical companies pay these drug manufacturers to delay producing the generic version. So even when the patent has expired, high-priced branded drugs are the only sellable drugs in the market.
Moreover, pharmaceutical companies patent the active ingredient and its various forms. It can be administered as oral, topical/dermal, or injectable/IV. This “evergreening” hinders drug manufacturers from producing generics.
- Marketing and advertising: Pharmaceutical companies spend millions on promoting their drugs through multiple channels. Marketing and advertising often cost more than R&D. It contributes to the high cost of the drug.
Further, a study shows marketing strategies have been suggested to influence physicians’ prescribing patterns. It’s a way of courting medical practitioners to get the desired outcome of repeat business.
People buy a branded prescription drug because their medical practitioner prescribes it to them. These marketing activities cost money. As a result, it adds up to the high price of the drug.
- Pharmaceutical distribution system: Prescription costs are high because of players in the market. Different parties participate in the distribution system. It’s a trifecta where everyone gets a piece of the pie.
The trifecta is the health insurance companies, Pharmacy Benefit Managers (PBMs), and pharmaceutical companies. Among the three tiers, PBMs are the top grosser. The reason is that they monopolize the trifecta to gobble up the whole pie.
Do you want to save thousands on healthcare for your business?
Who profits the most from prescription drugs?
You may think it’s the pharmaceutical companies since they’re the ones manufacturing the prescription drugs. Well, these pharmaceutical companies are not the true bad actors in this story. It’s the PBMs.
Let’s dissect the trifecta to get a clearer picture:
- Pharmaceutical companies: Pharmaceutical companies base their prices on R&D, drug uniqueness/specialty, drug effectiveness, and competition. Yes, they earn a lot. Study shows large pharmaceutical companies significantly profit more than large public companies.
These pharmaceutical companies earn money from wide distributorship. You can buy these prescribed drugs available in any pharmacy. But there are also specialty drugs. You only get these specialty drugs exclusively from specialty pharmacies that dictate their price.
- Health insurance companies: Health insurance companies rely on PBMs to negotiate agreements with drug manufacturers. And health insurance companies pay for the drugs dispensed to clients through PBMs. In return, they get a small margin of the drug profit.
At the same time, health insurance companies reduce their administrative cost through PBMs who do leg work.
- PBMs: PBMs are third-party administrators or middlemen. There are three big PBMs in the USA. These PBMs monopolize the three vertical tiers.
For example, the first PBM acquired one of the leading health insurance companies in the country.
At the same time, a second PBM is affiliated with another big health insurance company. In addition, it acquired a known medical group, a healthcare provider. It also has its pharmacy, care delivery, and ambulatory care service.
PBMs control 76% of costs or transactions. They make money from all tiers - health insurance, pharmacy business, and healthcare provider service.
They also make money through rebates or “kickbacks” from pharmaceutical companies. In exchange, PBMs assure these pharmaceutical companies preferred status on a health plan’s formulary.
In addition, they earn from “spreads.” It’s the difference between what they pay for the drugs from the pharma company and what is paid to them by the health insurance companies.
The only transparent cost in all these transactions is their fees.
Do you want discounted medications?
What are the solutions to high prescription costs?
A 2020 systematic review of 34 studies assessed the impact of US federal and state drug policies. It reveals these government initiatives led to reduced spending for consumers. But, the overall effect on patient outcomes remains unknown.
Early this year, a state initiative was formulated in New Mexico (NM). Rep. Angelica Rubio said, “Drugs don’t work if people can’t afford them.”
To remedy the high costs of medications, Rep. Rubio introduced legislation to create a Prescription Drug Affordability Board (PDAB). This regulating body aims to establish an upper payment limit. Thus, through proper pricing of medications, NMs gain access to affordable medicines.
On the grassroots level, self-funded businesses bear the brunt of the healthcare costs of their employees. They pay for healthcare insurance, which includes medication expenses. Employers, like you, do not know the actual price from PBMs and what happens behind the scene.
Here are some solutions on how you can help your business and your employees mitigate high prescription costs:
- Awareness campaign: You can reduce the cost of prescription expenses by being aware of the prescription process. It includes the what, where, and how of the healthcare coverage, prescription options, and costs.
An orientation or awareness campaign allows your employees to know more about their health benefits package. It gives them an idea of how to save money.
- Choosing pharmacies with low prices, best deals, or promotions
- Looking into generic alternatives of branded medications
- Studying other ways of accessing healthcare like virtual consultations and telemedicine
- Trying out health gadgets or applications
Knowing the flow of money from manufacturer to consumers helps you decide on the proper healthcare benefit. In addition, it shows you where you can cut your cost as an employer.
By being well-informed, you can reconsider if you want to avail healthcare insurance with the rising prescription costs in mind.
For one, direct primary care (DPC) provides healthcare services for your employees. Therefore, it can stand alone as a healthcare benefit or go well with your existing healthcare insurance. To top it off, DPC reduces your prescription costs.
- Direct Primary Care: A DPC provider, Well Life Family Practice (WLABQ) takes inflated claims and directly pays for them. And, it shrinks the prescription costs to about 30-90%.
For instance, WLABQ offered a client sildenafil for only $7-$15 without insurance. Yet, this prescription drug for erectile dysfunction costs about $150 in the pharmacies.
Another example is lab tests. A client was billed $700 for lab tests under his insurance coverage. In contrast, WLABQ took in the client who paid only $54 for the same lab tests.
WLABQ offers more than reduced prescription costs and lab tests. It has many ways to save money for you:
- A monthly fixed rate of $75 per employee includes:
- Zero co-pays
- Same day/next day appointments
- Major lab discounts of 50-90%
- 24/7 telemedicine
- In-house specialist
- An additional $30 for a household member covers 80-90% of healthcare costs.
- WLABQ has upfront and transparent pricing with honest feedback. One client used to complain about overstocking due to automatic refills from mail-order pharmacies. At WLABQ, we ask your employees first if they need the meds. It prevents them from stockpiling to manage their prescription costs.
- Virtual consultation and 24/7 telemedicine are included in the monthly membership fee. Your employees won’t have to leave work or spend on transportation to talk to us. It saves them time and effort without affecting their productivity.
- Your employees get to spend 30 to 60 minutes of quality time with our medical practitioners. Our focus is their optimal health through routine care. It also benefits your employees with chronic diseases because we continually manage their medical conditions.
Health insurance companies, PBMs, and pharmaceutical companies drive prescription costs. WLABQ helps you manage the costs through various services. We work well with small businesses of less than 50 employees.
A DPC provider, we do not spend unnecessary administrative expenses since we do not have a back office to process claims. As a result, we can offer a monthly fee of $75 per employee.
At this minimal rate, your employees enjoy healthcare benefits on top of discounted medications.