Taking on the cause of high drug prices

What the governor’s plan fails to do is address what happens after the drug leaves the manufacturer.

In February, Gov. Ned Lamont introduced the Comprehensive Package of Legislative Proposals on Healthcare, which addresses health care costs, access and worker shortages. He established a bill specifically targeting prescription drug prices, but he plans to do so by only targeting the pharmaceutical companies, failing to address the whole issue.

Consumers are often under the impression that pharmaceutical companies directly set the prices that they see at the pharmacy counter; however, there are many key players that determine how much is paid. The price the consumer pays for a drug is determined by the manufacturer, wholesaler, pharmacy, pharmacy benefit manager(s), and insurance companies or health plan sponsors. Each stakeholder plays an important role and is connected with one another, but let’s start with the consumer.

When a consumer buys a drug at a pharmacy, the price they pay is not the price that everyone else might pay. The prices vary by pharmacy, insurance, drug plan or the lack of a drug plan. That is due to the role of pharmacy benefit managers, or PBMs. PBMs are companies that act as middlemen who negotiate with manufacturers and pharmacies to control costs. Drug manufacturers pay rebates to the PBMs for drugs, which lower costs, and these rebates make up more than 20 percent of manufacturer spending. The PBMs proceed to give a portion of the rebate to the health plan sponsor, and money is reimbursed from health plan sponsors and PBMs to the pharmacy who purchases the drugs from the wholesalers. The wholesalers purchase the drugs from the drug manufacturers.

The drug manufacturers or pharmaceutical companies come up with an initial price for a drug in which the wholesaler pays. The price of a drug can range depending on patents, the existence of generics, or other manufacturers with the same drug, fees the company might have had to pay, and additional research to be done. Pharmaceutical companies spend the vast majority of their money on research and development, which leads to the development of more drugs and vaccines. These prices, however, are not controlled and a pharmaceutical company can continue to increase the price of a drug over time, which is what Lamont is seeking to control.

The proposed solution is “to limit annual increases in drug prices to no more than inflation plus 2 percent”

(An Act Reducing Prescription Drug Prices) which will prevent large increases at the manufacturer level. What his plan fails to do is address what happens after the drug leaves the manufacturer.

Prices can and will vary depending on PBM negotiations and the rebates from the manufacturers. This could also change which version of a drug an insurance company will cover depending on the price. Pharmacies and wholesalers can also adjust prices for their own profit as well, and this plan will not necessarily stabilize costs for consumers and will certainly not address the already incredibly high out of pocket costs for Connecticut consumers.