An Oversimplified Drug Price Policy That Misses the Point

Anyone who understands the true challenges of the prescription drug supply chain in the United States has sufficient reason to be, at the least, annoyed with the Senate’s Inflation Reduction Act. The bill offers the simple-sounding solution of drug price controls, but it utterly fails to solve the true long-term problem of higher costs for everyone who shows up at the pharmacy counter.

It is well-documented that people are paying more and more out of their own pocket for medicines, even when they have “good” health insurance from their employer. The Inflation Reduction Act does nothing to change this. So, unless you are in Medicare Part D – which this measure thankfully updates with a $2,000 cap on out-of-pocket drug costs – the Inflation Reduction Act won’t help you. As the House takes up voting on the legislation, I can’t help but think about every employer who will continue to stress each year as health care costs increase. I can’t help but think about every employee who will continue to see their premiums rise higher and higher while their insurance covers less and less. And I can’t help but think about the many exchange beneficiaries who, despite having insurance coverage, still can’t afford their medications. 

The elephant in the room is this: even as net prices for drugs remain flat, list prices for drugs are being driven higher because of the way our commercially-insured market is currently designed. More broadly, a wide array of middlemen, not just pharmacy benefit managers (PBMs), who have found ways to add needless costs to our health system: 

• The PBM group purchasing organizations (GPOs) that negotiate for the negotiators and take a percentage off the top
• The benefit consultants who take a cut while guiding employers to programs that push more costs onto patients
• The for-profit pharmacies that take a massive cut of 340B savings for commercially-insured patients who aren’t aware they are “340B patients”
• The “third-party administrators” whose entire role is to auto-reject prior authorizations as “not medically necessary” to save payers the distraction of having to do their own rejections 

All these middlemen contribute to the gross-to-net drug pricing bubble, pushing up what patients pay while taking their own cut. The system they’ve helped create is full of incentives to help them, and short of incentives to get medicines to more people. 

Meanwhile, what drug companies eventually charge after all this maneuvering has remained flat and, in some cases, declined. This has happened even though, as we have documented at the National Pharmaceutical Council, health outcomes in key disease areas have dramatically improved in large part because of innovative medicines.

Those future innovations are now at risk, as a wide array of research forecasts that fewer drugs will come to market because of the drug price controls. This will happen even as charges for hospital costs and physician services continue to rise, something the Inflation Reduction Act does nothing about. 

I’m happy for the one million or so Medicare beneficiaries who will benefit from the Inflation Reduction Act’s much-needed out-of-pocket cost protections. For the rest of us, even as our industry sees net prices decline, drug affordability will get worse. If we are serious about helping people get and afford their medicines, we need to address the elephant in the room.

John M. O'Brien, PharmD, MPH, is President and Chief Executive Officer of the National Pharmaceutical Council.