In May, I blogged about the Trump Administration’s plan to combat rising drug prices and last week, the administration and the U.S. Department of Health and Human Services (HHS) released their 100-day progress report. While this document is largely self-serving, it does reveal significant progress in trying to attack some of the more egregious drug pricing practices. Increases in drug costs – which represent over $400 billion of our over $3 trillion in healthcare expenditures – have been the fastest-growing component of our healthcare system. The document reports that 15 drug companies have reduced prices, rolled back planned increases or committed to a price freeze for 2018. There have been 60% fewer brand name increases in 2018 as compared with 2017 and 54% more price decreases in the same timeframe. In addition, the Food and Drug Administration (FDA) has been directed to streamline the release of generic and biosimilar drugs with over 1,000 approvals of generics and 126 in the month of July.
One driver of drug cost increases is the complex and opaque pricing system. Costs are high and going higher, yet patients have little understanding of what these drugs cost or how they are priced. Pharmacy benefit managers (PBMs) control the distribution of medications – and create much of their profits through preferred drug lists with cost incentives to users. These preferred lists are based upon rebates paid to PBMs, and they have sought to increase these rebates to bolster their revenue. Rebates now make up almost 25% of total drug costs compared to 6% just a few years ago. The HHS update states that rebates can be restricted by revisiting Anti-Kickback Statute interpretation and also by capping rebate increases in the Medicaid system. No doubt this message is a wakeup call to the drug companies and PBMs.
In another blow to PBMs, HHS indicated that they will seek to prohibit gag clauses between PBMs and pharmacies. These clauses prevent pharmacists from discussing lower-cost drug options with patients. And more low-hanging fruit – requiring drug manufacturers to include cost information in drug advertisements which will increase public awareness of the obscene prescription costs of these heavily-advertised medications. Centers for Medicare and Medicaid Services (CMS), the federal agency which oversees Medicare, has given states better ability to negotiate costs with drug manufacturers including the use of value-based contracting.
It is clear that system reform will be done by chipping away at the problem. To get a grip on healthcare inflation, we need these and more. Progress moves slowly though.