In 2019, several drug companies testified to the US Senate Finance Committee on medicine price hikes with a narrative of discounts given to health insurance companies and pharmacists, but not then passed onto consumers. In a recent conversation with PharmaBoardroom, Matt Eyles, president & CEO of the Association of Healthcare Insurance Providers (AHIP) sought to counter this claim and rectify what he sees as the unjustly negative reputation of the US healthcare insurance industry.
Who’s to Blame for Price Hikes?
In the US, pharmaceutical rebates are discounts that are redeemed after a transaction has taken place. Most of the rebate – and sometimes the entirety of it – is paid in lump sums to those who are paying the bill for the drugs, such as insurers or employers who cover their workers’ healthcare.
[The pharmaceutical industry] wanted to be able to provide lower price products to hospitals and to health insurance companies but not to provide those same low prices to pharmacies, wholesalers and others
Insurers and employers say that these rebates are frequently used to offset general healthcare costs and to hold down premiums. However, pharma companies have pointed fingers at pharmacy benefit managers (third-party administrators of prescription drug programs) and insurers, saying they are under pressure to raise list prices to keep all of these players happy.
But pharmacy benefit managers and insurers disagree, arguing that rebates are a diversion and that their negotiating tactics have kept total drug costs in check. “The pharmaceutical industry actually created prescription drug rebates,” proclaims Eyles. “They wanted to be able to provide lower price products to hospitals and to health insurance companies but not to provide those same low prices to pharmacies, wholesalers and others. Essentially, pharma companies wanted to really direct the rebates only to entities that were able to ensure that they were getting additional market share.”
Eyles continues, “For a greater share of the market the drug companies were willing to provide a rebate or a discount in order to get preferred placement on a hospital or health insurance plan formulary. They would be willing to give a 20-30 percent rebate for a preferred position and the knowledge that a competitor product would be excluded or in a less advantageous position. In that way, they would get a higher market share.”
“There are several legal cases around price discrimination and how manufacturers are able to provide these discounts to certain entities. Over time, as pharmacy benefit managers became much more prevalent and covered many more lives, they realised that they could get lower prices by using other market mechanisms to drive down prices.”
Medicare Part D: A Turning Point
For Eyles and the healthcare insurance industry as a whole, the final straw was the rollout of Medicare Part D, also known as the Medicare prescription drug benefit. When Medicare Part D was implemented, Eyles states that “The pharmacy benefit managers and healthcare insurance providers began to question the fairness of manufacturers increasing prices so rapidly, sometimes two or three times in a single year. They questioned whether such practices should be allowed, considering access and preferred positioning on the drug formularies was being offered.”
He continues, “It is important to remember that drug manufacturers were getting paid 100 percent of the list price, whatever the list price was. Some customers were paying 100 percent of the list price themselves and the manufacturers were getting reimbursed for that full amount. Others were getting very significant price discounts but as they increased the price, some people were paying it.”
Eyles concludes, “That is why we are seeing the growth of rebates from those that represent a small percentage of the list price to those that represent a higher percentage of the list price. The manufacturers have consistently increased prices, year after year, multiple times a year.”
An Alternative to Rebates?
Looking forward, Eyles is keen to stress that the health insurance industry is open to alternative solutions to ensure lower costs and greater patient access to medicines. “Health insurance providers … are not wedded to prescription drugs rebates as long as we can use market-based tools to get a lower price for patients. Through our board of directors, we have stated that if there is an alternative, such as manufacturers voluntarily lowering their list prices, we should discuss it.”
Eyles continues, “It is also important to remember that most manufacturers are publicly-traded entities that want to develop new drugs and make a profit for their shareholders. Pharma companies do not compete directly with each other at an enterprise level, they compete at a therapeutic level: Novartis does not compete with Merck in every area of business but might compete in cardiovascular diseases or certain types of oncology.”
He concludes, “There is currently not enough competition in the marketplace to drive down costs. Greater transparency in how list prices are set and increased competition are needed to ensure patients have access to the medications they need.”