The Market and Pricing of Pharmaceuticals

Submitted by hci3-usr on Saturday, December 12, 2015 - 09:33

Newtown, CT – December 12, 2015

Nothing exemplifies the opacity and warped nature of health care than the market and pricing of pharmaceuticals – When Martin Shkreli last popped out of the sewer, he was caught hiking the price of a common drug to outrageous levels, putting the lives of many in danger. He’s at it again, now targeting a therapy for a little known condition that mostly affects immigrants from South America. In Brazil the medication is sold for a few hundred dollars for a typical two-month treatment, and Shkreli wants to jack that up to $60K once he gets the drug through FDA approval. While there’s little doubt that Shkreli is a sewer rat, like other rats he is allowed to fatten up because he feeds on a rotten system. In a HBR article, Bob Galvin explains very clearly how health plans and employers have pitifully failed to rein in the warped incentives inherent in the way Pharmacy Benefits Managers operate. To an extent, the health plans are implicitly complicit with the PBMs because they simply pass on the costs to the end user, the premium payer, whether employer or consumer. PBMs have a vested interest in pushing higher priced drugs and so won’t push back against Shkreli or anyone else. In fact, in the last dust-up, it was consumer advocates, Medicaid plans and some legislators that forced the rat back into the sewer, not PBMs.

What this means to you – A recent report by Joe Antos and colleagues of the American Enterprise Institute offers a road map for a Republican-controlled Congress and others to substitute some of the increasingly obvious shortcomings of the ACA. While many of the proposals would go a long way to create a better equilibrium in the health care market place, it stays silent on the abuses that will continue to go on as long as the federal government is stopped from acting as a large purchaser when it makes sense to do so. Negotiating better prices for medication is one such area, as is putting durable medical equipment up for competitive bidding. The notion that health plans will suddenly turn around and become lean, mean, sourcing machines simply doesn’t pass the sniff test, because it’s a lot easier to jack up the premiums than to work hard to potentially upset a lot of suppliers. That’s not to say that health plan-based competition couldn’t work, but it’s a bit tough to expect robust competition when the market is consolidated down to 3. Payers, whether they be employers, States, or the federal government, should exercise their bargaining power because markets work best when those that pay the bills are free to negotiate for the best deal. Empowering consumers is an essential part of the mix, but not the only one, because someone with Chagas disease that only has one medication option is not really in a position to negotiate. That’s not a fair fight, and if we want the consumer-directed market to work, then we have to make sure that the consumer has a fighting chance, and sometimes that means others have to step in to ensure fairness. Either that or we risk letting the rats run loose.

Francois Sig
Francois de Brantes
Executive Director