How Clinton's Drug Plan Could Give Manufacturers Even More Pricing Power

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Although the presidential candidate seeks to cap monthly drug costs to $250 for covered drugs, what will happen to drug costs that are associated with co-insurance?

Drug price hikes-like that of the one seen in the highly publicized case of Turing Pharmaceuticals' Daraprim-are prompting public outcry and are demonizing the industry for those who see people like Martin Shkreli as representative of all pharmaceutical executives. But capping drug price increases may affect actual patient costs less than imagined, and may have a bigger impact on pharmacy benefit managers and insurance companies.

Although Hillary Clinton refers to capping “drug prices”, the monthly out-of-pocket cap she proposes in her new plan is actually a cap on patient co-pays, not drug prices. If drug prices go up, and a monthly co-pay cap were in place, where would insurance companies make up the lost revenue? A cap on co-pays could theoretically drive insurance premiums up and total healthcare expenditures for patients may not actually change, they would just simply shift. "The problem with potentially implementing a cap on co-pays (in addition to the one that already exists through the out-of-pocket max) is that the patient is only paying a small fraction of the total cost of these medications," David Whitrap, senior director of corporate communications at Express Scripts, told BioPharm International. "It's the employers and taxpayers who are funding the lion's share of prescription drug costs in the United States, and the co-pay cap does nothing to curb rising drug prices."

Discounts from drug manufacturers to insurance companies or pharmacy benefit managers (PBMs) are rarely passed on to the consumer in the form of lower co-pays, notes Peter J. Pitts, who is president of the Center for Medicine in the Public Interest, chief regulatory officer at Adherent Health Strategies, and a former FDA associate commissioner. However, when drug prices increase, a patient may be expected to make up the cost difference, especially if a drug is moved to a higher tier within an insurance plan. When expensive medications, such as biologics, are moved to a higher tier, more of the cost-sharing burden ends up on the patients. If a PBM decides a drug is too expensive, and says it will not cover a drug at all (as in the recent case of Express Scripts with Sovaldi), a patient may have to pay full price for the drug if they want the drug as prescribed by his or her physician. In this example, the co-pay cap suggested by Clinton would not put a dent in what a consumer actually pays for a drug, as the cap would only apply to the drugs that are “covered”, or included in a PBM or insurer formulary list.

Out-of-pocket (OOP) caps, however, have the potential to reduce the effectiveness of drug benefits with higher OOP costs-particularly co-insurance, says Richard Evans, an analyst at Sovereign & Sector and a former Roche executive. “Without OOP caps, under co-insurance patients care a lot about absolute prices, and the rate at which prices grow-since this affects their OOP cost,” Evans says. “Under fixed co-payments, absolute drug prices and rate of price growth don’t have an immediate effect on patients. If you install OOP caps, then you ultimately force co-insurance to behave a lot like fixed co-pays, since OOP caps limit the extent to which OOP costs can rise under co-insurance.” Co-insurance models are typically more expensive for patients than co-pay models-even after a patient has met his or her deductible-so a patient may reach his or her OOP cap more quickly under co-insurance. “Ironically, this would give manufacturers more pricing power, not less,” Evans added.


Insurers and PBMs may, therefore, be particularly interested in how policy surrounding the proposed pricing caps develops. PBM Express Scripts says it already closely tracks manufacturer price increases and will continue to work to ensure that its “clients are not paying more for prescription drugs that provide no additional health benefit."