Prescription Drug Pipeline, Prices and Patients

July 25, 2018
Putting it All Together: The Drug Industry

Last night at Torrington City Hall, I discussed the factors and implications of rising drug prices with State Comptroller Kevin Lembo, Dr. Stacy Taylor, board certified family physician at Charlotte Hungerford Hospital and Vicki Veltri, Chief Health Policy Advisor at the state Office of Health Strategy.

The cost of prescription medications has steadily increased and is influenced by many factors. During the past legislative session, I co-sponsored legislation holding pharmaceutical companies accountable for price increases and utilizing the rebate system to exponentially increase profits.

The bill, effective January 1, 2020, requires drug companies to report when the price of a drug increases over 20 percent in one year, when a drug is going through the U.S. Food and Drug Administration Approval Process, and will require pharmacy benefit managers (PBM) to report how much money is collected in rebates and how much is kept.

How the prescription medication industry ties together can be complex because there are so many parts, and because transparency is almost nonexistent the system disadvantages vulnerable individuals who are uninsured, unemployed, or are surviving on low or fixed incomes, such as the elderly.

According to a recent Consumer Reports survey, one in seven people will not fill their prescriptions because of the high cost. Families should not have to forego basic necessities to pay for their prescription medications to maintain their health.

The prescription drug supply chain includes four parts— the manufacturer sells the drug to a wholesaler at the wholesale acquisition cost (WAC), which is then sold to pharmacies at a percentage off the WAC. Pharmacies then fill and dispense the drug to patients.

While the supply pipeline doesn't directly increase costs, the Drug Benefit Programs, the Rebate System, and PBMs do.

Drug Benefits Programs allow patients to pay a premium to an insurer providing prescription drug coverage. Insurers hire a PBM to oversee the benefit programand reimburse the PBM for the cost of drugs actually dispensed plus administrative fees.

The Rebate System is a retroactive discount manufacturers pay to PBMs in exchange for preferred placement on a PBM formulary and increased market share for its drug.

The PBM theoretically pays a portion of the rebate to the insurer, which shouldlower drug costs for patients.

However, the issue is that typically the PBM negotiates contracts with manufacturers, health plans and pharmacies to maximize profits, and because coinsurance and copays are based off the list price and not the rebate price, patients pay an inflated price.

This system motivates PBMs to construct formularies based on rebate amounts and not reduce drug costs for patients, which oftentimes leads to step therapy, prior authorization, and non-medical switching, among others.

In some cases, health plans may not see a rebate,because the PBM is only obligated to award a rebate when it’s defined in a contract.

In addition to rebates, PBMs use spread pricing to increase revenues.

Spread Pricing is the difference between what PBM charges the health plan for a drug and what it reimburses the pharmacies for dispensing it.

Transparency is absent in both steps, allowing PBMs to keep the difference as profit.

We need to find a better system— one that is transparent and won't take advantage of the patients who depend on it.

Below I have included how you can save on prescription medications.


How to Save on Prescription Medications

  • Ask Your Provider About Cheaper Options
    • Generic is cheaper
  • Use a GoodRx Coupon
    • This web site allows you to compare prices at different pharmacies
  • Ensure Your Insurance Covers Your Medication
  • Manufacturer Assistance Programs or Coupons Can Lower Prices
    • Coupons only apply to commercial insurance
    • Some coupons will deduct the non-coupon price from your deductible
  • Purchase a 90-Day Supply
  • Cut Higher Dose Pills in Half if Possible
    • Some medications cannot be cut in half
    • Some insurers may require the lower dose whole pill is used rather than ½ of the higher dose pill
  • Use a Mail-Order Pharmacy
  • Use an Online Pharmacy With CAUTION
    • Ensure the site requires a prescription and has a pharmacist available to answer questions
    • Only buy from licensed pharmacies in the US
    • Don’t provide personal or financial information unless the web site guarantees it will be protected
  • Use the Veterans Health Administration if you are eligible