Diabetes is an inescapable condition for 34 million Americans. The painfully high cost of medicines for treatment is certain to become a test case for taming the cost of medicine in our country.
As you'll recall, drug prices started rocketing in 2015 when a financial weasel named Martin Shkreli, then CEO of a pharmaceutical firm, raised the cost of an HIV medicine called Daraprim by 5,000 percent. Shkreli is in prison for several frauds -- but drug price increases became widespread, and never went away.
Drug patents last for 20 years beginning with the drug's invention -- not its approval. That means that in real life, the patent is good for about ten years of sales. Drugs that are combinations of older drugs get a reset: There's a new 20 years, during which the drug companies have a free hand in pricing their proprietary little Frankensteins. Take the generic drug Metformin, whose active ingredient has been around for decades. It can give people stomach problems, but a newer version of the drug that doesn't cause those problems costs $5,000 a month, according to one doctor. The drug companies argue that research and development costs make the pricing situation fair, but health insurance won't cover those drugs because of the cost.
Bogus Arguments Coming Our Way
We're going to see a lot of bullpucky in the coming weeks and months about how insulin prices ROSE under Biden. The story goes that Biden canceled a patient-friendly new rule that provided low-cost insulin and epinephrine to low-income patients that was supposed to go into effect two days after Trump left office. "Trump's Executive Order 13937, published by the Federal Register, supports improved access to affordable insulin and injectable epinephrine for low-income individuals 'due to either lack of insurance or high cost sharing requirements.'"
The interpretation is bogus. First, Trump's pending rules were suspended for 60 days at the outset of Biden's administration, which is a normal step for a new administration. What's nutty is that the executive order affects only a small slice of health care providers: Community Health Centers, which buy insulin and epinephrine at a discount through the 340B drug pricing program.
The rule was supposed to make these community centers charge patients only what they paid for the drugs, plus a small administrative fee. It sounds good, but the administrative fee was supposed to be calculated separately for each and every prescription, with the manpower costs borne by the centers. “We are deeply grateful the Biden Administration put the brakes on such a harmful rule within hours of taking office,” wrote Tom Van Coverden, President and CEO of the National Association of Community Health Centers.
Back to the price hikes: It isn't just Shkreli-level greed that does it. On January 14, Senators Chuck Grassley (R-OH) and Ron Wyden (D-WA) released an 80-page report summarizing a two-year Finance Committee study about why insulin prices have risen.
Here's a grammatically-cleaned-up tweet from Grassley:
"Prices have gone through the roof for patients and taxpayers because of manufacturer, health plan, and pharmacy benefit managers' practices. They make money as a percentage of ballooning list prices, so [there is] no incentive to lower prices on [a] hundred-year-old drug."
That is, there's a lovefest between manufacturers and pharmacy benefit managers. Typically, the benefit manager is a separate company from the health insurers, and they'll calibrate the patient drug formularies to maximize their income in conjunction with cutting deals with manufacturers for certain drugs. They may offer a few not-so-pricey drugs to treat various conditions, particularly drugs they can get on the cheap. (Over the years, I've seen some generics that cost the benefit managers less than the patient copay.) There's another tactic employed by health insurers themselves: The "better" drugs are approved only when the patient's condition is two ticks above hospitalization, leaving the patient in mediocre health for the long term.
A quote from the Finance Committee's report says, "First and foremost, pharmaceutical manufacturers have complete control over setting the list price (the Wholesale Acquisition Cost (WAC)) for their products. This investigation found that manufacturers aggressively raised the WAC of their insulin products absent significant advances in the efficacy of the drugs. These price increases appear to have been driven, in part, by tactics pharmacy benefit managers employed in the early 2010s." The report also states that drug manufacturers increased the list price for insulin partially to allow them to offer larger rebates to benefit managers and health insurers.
That is, the upcoming fight over prescription drug prices has nothing to do with Biden canceling Trump's executive order. It's not a matter of forcing health-care providers to trim pennies off prescriptions. Instead, it's a matter of 1) tweaking patent laws so that combinations of drugs do not have the same length of time under patent protection as the drugs from which they're made. 2) regulating sweetheart deals among the branches of our health care industry.
What do you think would work for taming out-of-sight drug prices? Do you think drug R&D costs mean that Americans should pay higher prices? What other ideas do you have about the issue?
