Pharmaceutical Supply Chain May Influence Drug Costs

A report from the Pharmaceutical Research and Manufacturers of America (PhRMA) suggests that the complexity and the number of players involved in the drug supply chain may be a major reason prescription drug costs are making headlines.

The high cost of specialty drugs—including those that treat rare diseases—has resulted in outrage among patient and advocacy groups that has spurred a deeper investigation by lawmakers. Typically, a drug passes through wholesalers, pharmacy benefit managers (PBMs), insurers, and pharmacies before it winds up in the hands of the patient.

Additionally, the supply chain varies from drug to drug, with some requiring temperature-sensitive handling and storage. This can add another layer of costs for an already costly drug.

While negotiations between PBMs and manufacturers can result in significant rebates, the authors said that the current system could incentivize PBMs to prefer drugs with higher list prices and rebates.

These actions have caused several groups to inquire whether insurers and PBMs are focused on negotiating the lowest costs for patients, according to the study.

“As a result of robust negotiation and competition in the marketplace, medicine costs are growing at the slowest rate in years,” said Stephen J. Ubl, president and chief executive officer of PhRMA. “At the same time, this report highlights the need to evolve our current system to better reward results and ensure patients more directly benefit from the significant price negotiations.”

The prices paid for prescription drugs greatly depends on several negotiations between wholesalers, pharmacies, PBMs, and insurers, according to the study. The authors noted that rebates have increased over the past few years, but out-of-pocket (OOP) costs for patients are soaring.

Health plans with high deductibles or coinsurance have grown more popular, meaning that more patients have higher OOP costs. These patients may not be able to benefit from negotiations since their co-payment is based on the list price rather than the negotiated cost, according to the report.

In the study, the authors discussed multiple examples of how the complex supply chain can increase costs for patients.

In one example, a hypothetical patient named Diane is prescribed an HIV medication with a list price of $3000. Although Diane’s insurer receives a 20% rebate, her coinsurance is $612 because it is based on the list price. Diane pays more than $100 above what she would have paid if the coinsurance was based on the negotiated price, according to the study.

For this example, the PBM also generates revenue and charges fees based on the list price. The authors report that the PBM earns $522.25 for the HIV drug, which includes $308 for managing the pharmacy benefit for the insurer and $214.23 because the PBM also owns the specialty pharmacy that dispensed the drug, according to the study.

The multiple examples throughout the report show how the supply chain can increase the out-of-pocket costs for both specialty and non-specialty drugs. The authors said these findings highlight the need for a change in the way point of sale costs are calculated to ensure that patients are seeing the benefits of negotiated discounts.

“As the hypothetical examples in this paper show, patients may be paying more than their insurer for a prescription, and they may not benefit from negotiated rebates. Although many manufacturers are offering larger rebates every year, patients’ cost-sharing is increasingly based on undiscounted prices,” the authors wrote. “This needs to change. Patients should benefit from negotiated rates in the form of lower out-of-pocket costs at the pharmacy, just like they do for other types of health care services.”

The authors said that value-based arrangements with manufacturers may also help drive down costs for patients.

“These new types of arrangements offer the potential to increase the choice of therapy, ensure that patients have affordable access to the newest medicines, and enable our health care system to achieve better outcomes at even more affordable prices,” the authors concluded.