By Jacob Wolinsky. Originally published at ValueWalk.
A new Trump administration rule would require insurance companies to give customers their out-of-pocket costs for prescription drugs and disclose to the public the negotiated prices they pay for the drugs. The Biden administration is expected to keep the new price disclosure rule for health plans.
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Prescription Drug Transparency May Raise Drug Prices
But health economists argue that disclosure of this information will not only damage market competition but also raise drug prices. Many argue the largest contributor to out-of-pocket costs is Pharmacy Benefit Managers (PBMs).
PBMs make money for each prescription filled at a pharmacy. They negotiate with drug manufacturers on cost, as well as determine which prescription drugs will be included on a health plan’s formulary (a list of drugs covered by an insurance plan).
To convince PBMs to include their prescription drugs on a given formulary, manufacturers will offer rebates on the drug. Manufacturers are incentivized to increase the list price and rebate percentage in order to convince PBMs to add their drugs on the formulary.
The contracts between PBMs and drug makers are considered proprietary, meaning nobody truly knows how much money is exchanging hands or how it is reflected in drug prices.
While making these transactions transparent should expose these deals and reduce cost, The Federal Trade Commission has repeatedly stated that public disclosure of PBM-negotiated price concessions would result in tacit collusion among drug manufacturers, leading to lower discounts or rebates and higher drug costs for patients.
Technology And R&D Costs
“Transparency is only one piece of the puzzle. Technology and research and development costs are key drivers in health expenditures. The cost of administration and institutionalization is also extremely high in the US and includes a significant amount of waste that can be reduced.” –Dr. Phil Ball, Principal, Head of Policy Practice, Innopiphany
Innopiphany is a Life Sciences consulting firm which specializes in Market Strategy, Forecasting, Market Access, Health Economics Outcomes Research (HEOR), and Healthcare Policy, for major US pharmaceutical companies.
In addition to production costs and policy issues, Innopiphany sees a major shift happening in healthcare structure, treatment paradigms, and cost.
By moving away from fee-for-service based healthcare and moving toward value-based healthcare, consumers could see major improvements in out-of-pocket expenses¾but there is concern on what this means for the U.S..
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