Feeling the pain of rising drug prices? Blame the middle man

While Washington wrangles with a replacement for Obamacare, patients across the country continue to battle one of the biggest everyday obstacles to good health care: Rising drug prices.

Prescription drugs account for 10 percent of the $3.2 trillion in overall health care spending, outpacing all other health care services, according to government statistics. Consumers with diabetes, cancer and leukemia are some of the most likely to feel pain at the pharmacy due to recent drug price hikes. The cost of two common types of insulin, for instance, increased 300 percent in the past decade.

On the face of it, pharmaceutical companies take most of the blame. Headline-making price jumps for drugs such as Mylan’s EpiPen and the recent announcements on insulin price increases, have shed new light on drug manufacturers’ addiction to higher prices. But pharmacy benefit managers (PBMs), the firms that manage prescription services for insurers, are also culprits, according to health care advocates and recent research published in JAMA Internal Medicine.

Here’s how it works: Large PBMs such as Express Scripts, CVS Caremark and OptumRx, negotiate with pharma companies for lower prices, discounts and rebates on each prescription filled. In return, the drug companies are included on the PBMs’ formularies, the list of drugs insurance will cover. PBMs claim they pass these savings onto the health plans they work for, which in turn lowers prices for consumers.

But it doesn’t always seem to happen that way. How much in rebates pharmaceutical companies give and PBMs receive are not disclosed. And the JAMA Internal Medicine report argues that rebates for Medicare Part D prescription drug coverage actually may raise costs for patients and Medicare, while increasing profit for insurers and drug makers. As PBMs negotiate more discounts and rebates, pharmaceutical companies have been raising prices at a record rate, in part to preserve the industry’s high profit margins.

Health care consumers are caught in the middle of the complicated world of drug price negotiations, as several recent lawsuits and legislative efforts on the subject attest.  Here’s what you need to know.

List price matters. Because PBMs end up paying far less than the list price for most drugs, the thinking goes that the list price doesn’t matter anymore. Only the negotiated price is what counts. But list price does matter when it comes to co-pays, co-insurance and other out-of-pocket costs. These payments are often based on the list price of a drug, not the discounted price. So if you are paying 20 percent co-insurance on a $200 vial of insulin per month, but your insurer is paying a discounted $75 per vial, you pay the 20 percent on the list price, or $40, instead of the $15 you would pay if the co-insurance was 20 percent of the discounted price. And, for Medicare patients, it is often the higher list price that is used to calculate the so-called doughnut hole, the spending level at which patients pay a higher percentage of out-of-pocket costs for drugs.

Watch for clawbacks. This happens when your co-pay or co-insurance is higher than the negotiated price of your medicine. Your co-pay isn’t reduced in line with the lower price of the drug. One current lawsuit involves a consumer who paid a $50 co-pay to fill her contraceptive prescription. But her pharmacy had contracted to pay only $11.65 for the medication, leaving the $38.35 to go back to the PBM involved in the negotiations, according to the suit’s allegations.

You can negotiate. With the lack of transparency and health care policy far from settled in Washington, there isn’t a whole lot consumers can do to counteract the middleman phenomenon. But you can negotiate. Pharmacies have gotten accustomed to the fact that most everyone doesn’t pay list price for a drug anymore, so when you ask at the counter, is there any discount on that, the answer will likely be yes, especially if you haven’t yet met your deductible or you are uninsured.