According to a recent article in the Wall Street Journal, the pharmaceutical industry raised prices in the month of January at a rate below what has been common in recent years – 3.3% vs 5%+. While it at first appeared that this was somewhat good news, with a closer look, it became apparent that the “smaller increase” was applied to about 50% more drugs than at the last increase.
As consumers we are told that these price hikes – that consistently outpace inflation – are necessary to fund continued research and development. However, when you dig into the details you see that the net price of drugs for the manufacturers in many cases goes down and the increase primarily benefits pharmacy benefit mangers (PBM’s).
Are PBM’s engaged in R&D? No. They negotiate directly (and in secret) with various players in the industry and are paid large rebates to place drugs favorably on the lists of covered drugs we call formularies.
In the case of insulin, 60% of the total is this rebate ($300 of the $500 monthly cost). Does this somehow improve R&D?
This is the single largest threat to our healthcare system in the coming years and so far, we have not seen the political will to address it from either side of our system successfully. It is time for some commonsense transparency in this huge sector of our economy.
Fortunately, forward thinking employers do not have to wait for political action that may not arrive in time. They can engage the services of a transparent PBM now and cut the drug costs inside their health plan by as much as 50% lowering their overall healthcare spend by 10-20%.