The Sacramento Bee: Your drug costs might drop if lawmakers can agree on why they’re so high

May 30, 2017

BY ALEXEI KOSEFF

From presidential campaign promises to congressional hearings on the price of EpiPens, 2016 was the year that public anger over the rising cost of prescription drugs boiled into a national outrage.

California lawmakers responded this session with a half-dozen measures targeting players across the complex supply chain that brings medications to patients and determines what they pay. To tackle what those legislators say is a problem of drug affordability, however, they’ll first have to agree on who is to blame.

Insurers complain that drug companies are jacking up prices without explanation. Manufacturers counter that health plans are not passing on the savings from rebates to consumers. And there is increasing scrutiny of pharmacy benefit managers, a largely overlooked segment of the industry that negotiates discounts for prescriptions on behalf of insurance companies.

“They all point the finger at one another,” said Assemblyman Jim Wood, D-Healdsburg. “It’s like a circular firing squad: ‘Everyone else is the bad guy, not us.’ ”

The most high-profile measure is Senate Bill 17, which revamps an unsuccessful proposal from last year. It would require drug companies to notify direct purchasers at least 90 days before raising the price of medications by certain thresholds.

The bill also mandates an annual report by insurers on the most frequently prescribed and most costly drugs, as well as how those costs contributed to changes in patient premiums. Sen. Ed Hernandez, the Azusa Democrat who is carrying SB 17, said this “modest approach” could help rein in price increases by bringing more transparency to what consumers are really paying for.

He cites eye-popping recent examples: The state spent about $920 million last fiscal year on breakthrough $1,000-a-pill hepatitis C drugs, like Sovaldi, for Medi-Cal patients and prison inmates. In February, the U.S. Food and Drug Administration approved an $89,000-per-year treatment for Duchenne muscular dystrophy that many customers previously imported from overseas for about $1,200 annually; the price was dropped to $35,000 following patient outcry.

$450 billion U.S. spending on prescription drugs in 2016 before rebates and discounts

U.S. spending on prescription drugs hit a record $450 billion in 2016, according to health care research group QuintilesIMS Institute, or $323 billion after rebates and discounts from manufacturers to insurance companies.

Where is all that money going? Drug manufacturers say they are making major investments in research and development – $52 billion in 2015 – for new products, including many that never succeed. But critics like Hernandez dismiss that as a hollow excuse. He points to studies that concluded the pharmaceutical industry spends many times more on marketing than research, which he noted is done with assistance from universities and the federal government.

“Yes, a pharmaceutical drug company should be allowed to make a profit, but not so much so that they gouge the consumer or the taxpayer,” Hernandez said. “None of them are going into bankruptcy.”

SB 17 has a wide array of supporters, from insurers and hospitals to organized labor, cities and local chambers of commerce, all frustrated over how prescription drugs costs are eating away at their budgets. The California Association of Health Plans estimates that more than 22 cents of every health insurance premium dollar goes to prescription drugs, the largest single cost. Advance notice of price hikes would give them time to prepare, proponents say, including possibly shifting patients to alternative treatments.

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