One of the biggest frustrations echoing from our postings over the last couple of years has been the covert, if not outright overt, collusion in the pharmacy market between drug manufacturers and in many instances the PBMs—pushing up the list cost of pharmaceuticals. This has been an issue hitting our clients’ wallets hard because although the net cost can be negotiated by tightening pricing guarantees and increasing rebates, most contracts are not renegotiated more than once in three years. And some clients don’t review their deals more than once or twice a decade. In the interim the list pricing continues to inflate at double-digit rates while the client and its employees bear the spiraling costs.
Two weeks ago the Justice Department officially filed charges against one generic drug maker who evidently colluded with the market to increase a medication for Lyme disease from 10 cents a pill to nearly $5. Once the collusion was exposed and new manufacturers entered the market the price of the drug dropped by nearly 80%. Remarkable.
The manufacturer was quick to point out these were just “list prices” and not the net cost for many customers, but as outlined above, most drug purchasers (i.e. self-funded employers negotiating for their private plans) are not renegotiating the net costs frequently enough.
Just over the last couple months I’ve encountered two large prospective clients who were receiving less than half of the rebates they could extract in this market—leaving hundreds of thousands of dollars on the table. And surprisingly, they are represented by large consultants.
With prescription costs now approaching 30% of the medical budget for many clients, a simple oversight of its implications on the healthcare budget is no longer defensible. Employers (and consultants) must remain vigilant.