Latest news with #drugprices
Forbes
3 days ago
- Business
- Forbes
Are Drug Prices Really The Problem Behind American Healthcare Costs?
The U.S. healthcare system is the best in the world for complex care. We have the most innovative drug companies, the best medical devices, and incredible doctors and surgeons. The U.S. healthcare system is also the most expensive system in the world. One key component of the medical system that has long been a point of contention is drug prices. U.S. drug prices are extraordinarily high compared to the rest of the world. The exact same medication that's sold in the United States is often sold overseas for a fraction of the cost. This pricing disparity has long been a point of consumer dissatisfaction, but elevated inflation and recent executive actions are putting the topic of drug prices back under the microscope. The history of drug prices in the U.S. and the way in which they've risen could be a much longer essay than the article we are writing here – but there are a few key points that are worth discussing. In particular, we want to call out how the industry has shifted over time to pull pricing power away from the drug companies and to put the power in the hands of insurance companies. The shift involves obvious conflicts of interest, but there are also significant nods to potential efficiency gains and economies of scale. The issue is nuanced and it's difficult to pinpoint what the right balance is to ensure we have access to the best medicine, at reasonable prices, without stifling innovation. If there's any single culprit behind high drug prices, it has to be pharmacy benefit managers (PBMs). For decades, PBMs have quietly amassed power in the U.S. healthcare system. They are the penultimate corporate middlemen - negotiating prices, controlling formularies, and ultimately determining what shows up on your insurance plan's covered drug list. Their influence on drug prices has grown substantially as their parent companies continue to acquire and vertically integrate specialty pharmacies, provider networks, and rebate aggregators into their business models. If you don't know what any of those things mean or how they interact, don't be discouraged. The opacity of the business model is one of the key components that allows PBMs and their parent companies to generate profits and keep drug prices moving higher. So, what is a pharmacy benefit manager? Decades ago, as employer-sponsored health insurance grew to be more complex, insurers needed help managing drug benefits. Patients needed access to a growing number of drugs, and insurance companies needed to know which ones to cover. PBMs emerged to fill this administrative gap, acting as intermediaries to process claims, negotiate pharmacy contracts, and provide 'formularies' - lists of drugs that would be covered under an insurance plan. The job of a PBM, on paper, is to help health insurance plans manage the cost and utilization of prescription drugs. Simple enough in theory – the PBM sits in the middle between doctors prescribing the drugs, pharmacies distributing the drugs, and the insurance companies who are paying for the drugs. Put simply, they were making sure everyone is on the same page. Over time, the economics evolved. PBMs began to consolidate, preaching that bigger scale meant more negotiating power with the drug companies to lower list prices, which in turn meant better deals for the insurance companies and for the end patient. Unfortunately, increased bargaining power also leads to potential conflicts of interest and more opportunities for PBMs to drive profits towards their own bottom lines. Drug companies know that they're going to have to pay the PBMs to get their drugs approved and put on formulary lists. Without being on a formulary list, that drug isn't going to be covered by insurance, which means nobody is going to use the drug. That's where the shenanigans start. Drug companies actually end up being incentivized to increase drug prices, knowing they're going to have to give rebates and concessions to the PBMs. This rebate system ultimately ends up being the biggest conflict of interest, and the biggest hurdle to affordable drug prices. PBMs are supposed to put drugs on formularies because they're effective for patients, not because they're getting big rebates from the drug companies. But you can easily see where the PBM might start to leverage their situation to make a profit. The higher the list price of the drug, the bigger the rebate, and the more potential earnings for PBMs. The PBM has all the leverage, and crucially, end patients aren't really part of the savings equation. And, as if that wasn't messy enough, the PBM's potential conflicts of interest get even messier when the PBM isn't an independent company. Over the years, there's been intense consolidation within the PBM market, with the three major players - CVS, UnitedHealth, and Cigna - now controlling more than 80% of it. Notice anything about those three companies? All three of them aren't really known as being PBMs. They're all actually insurance companies. That's right, the companies who determine what medications are covered or not covered are the same companies who are paying for the medication. If United Health goes to a drug company and says, 'pay us a bigger rebate' and we'll make sure that your drug is on the list of approved drugs for our patients, it's hard to see a scenario where the drug company says no. Tracking the flow of money tied to a single drug transaction can be incredibly complex, given the many interrelated players. Take, for example, a patient buying insulin at the pharmacy. The pharmacy first purchased the insulin in bulk from a wholesaler, who bought it from the manufacturer. Before the pharmacy can even sell the drug to an insured patient, it has to be approved for coverage - placed on the formulary - by the PBM. The PBM is probably only putting the drug on the formulary if they're going to get some rebates from the drug manufacturer. The patient also likely needs to have a prescription for their drug, which means they needed to talk to their doctor – someone preapproved as being in network by the insurance plan. The patient not only pays premiums on their insurance, but then also has to pay a co-pay at the pharmacy when it's time to buy the drug. Given that the pharmacy might be owned by one of the large insurance companies, the co-pay is likely a source of profit for the insurance company as well, either directly or indirectly. If that all sounds confusing, it's because it is! The integration of so many players under one umbrella creates enormous complexity. Of course, the vertical integration of insurance with PBMs and physician groups could also provide scale-based efficiencies. It's natural for these companies to combine like this. Scale brings benefits when you're trying to make sure patients have access to different kinds of doctors, and scale is a huge factor in reducing the cost and risk associated with insurance pools. And theoretically, larger groups should have more bargaining power to demand price cuts from the drug companies. Unfortunately for the insurance companies though, the vertical integration has made it hard for them to redirect the blame for rising costs towards anyone else. In an effort to lower drug prices in the U.S., President Trump recently issued an executive order promoting the Most Favored Nation (MFN) pricing model. This policy aims to align what Americans pay for certain medications with the lowest price paid by other developed countries. The move faced immediate pushback from both drug manufacturers and the parent companies of PBMs, who stand to lose significantly if list prices are slashed. Remember, the rebates the PBMs get are generally going to be higher if the list price for the drug is higher. In our opinion, the move to shake up drug pricing is misguided. The current practice of localized pricing works to find an equilibrium between maximizing access to the drug while also maximizing the drug maker's ability to generate a profit. Artificially lowering drug prices in the United States by benchmarking to international prices simply ensures that the rest of the world has less access to our drugs, while accessibility for Americans is unlikely to change for the better. That's because drug accessibility here in the US is a function of not only price, but also of formulary design and insurance coverage for the medication. Lower list prices could end up meaning smaller rebates and reduced incentives for insurance companies to provide some sort of drug coverage. Forcing drug makers to offer their drugs at lower prices may also stifle innovation. While nobody likes paying high prices, companies need to be able to generate a return on their investment in order for a project to be viable. Keeping that incentive system in place is important. Fortunately, the executive order left room for negotiation; price targets for the U.S. market remain undecided. However, the implications are clear. People are fed up with the high cost of healthcare and politicians looking to garner favor with their voter bases are going to keep on looking for opportunities to attack the space. The opaque profit model and conflicts of interest inherent in the current business structure are easy political targets. PBMs have long profited from the arbitrage between inflated list prices and manufacturer rebates. If MFN-style reforms take hold, PBMs may see their margins compress and rely more on flat administrative fees rather than back-end rebate deals. Increasing bipartisan scrutiny and pressure to lower drug prices generally threaten the opacity of their business model, potentially sparking further consolidation as legacy PBMs scramble to defend market share and margins. Meanwhile, newer market entrants offering direct-to-consumer delivery - effectively bypassing PBMs - could align with the current administration's embedded directive to facilitate direct-to-consumer purchasing programs at MFN prices. Expect some form of rebate pass-throughs or the elimination of spread pricing to try to make it into a bill, both of which would dent margins, but would be substantial undertakings. The rise of rebate aggregators, entities often owned by large PBMs that negotiate rebates on behalf of multiple clients, significantly complicates regulatory efforts to trace rebate flows and the logistics of pass-throughs. PBMs, for their part, maintain that these entities and rebates in general help to lower insurance premiums and fund broader plan benefits, but Americans have grown increasingly skeptical that these benefits ever reach them. For large insurers owning PBMs - like CVS (Caremark), Cigna (Express Scripts), and UnitedHealth (OptumRx) - reform could trigger a shift in profit centers toward more stable revenue sources such as medical services, specialty pharmacy, or basic insurance premiums. But reducing intermediary involvement might also force PBMs to spin off their pharmacy operations entirely. The conflicts of interest clearly run deep in a system where the middleman influences which drugs are covered by insurance while simultaneously owning the pharmacies dispensing those same drugs. Still, reform momentum is building. Increased transparency could usher PBMs into a new era of accountability and structural change - though whether this benefits patients or merely reshapes profit flows remains to be seen. Healthcare stocks have had a rough go this year, but the system is still ripe with subsectors set to benefit from continued innovation in artificial intelligence. Playing the politics game and picking the winning PBMs and insurers is likely to leave investors disappointed, but structural tailwinds like AI and an aging population in the US aren't going away any time soon. Progress in drug discovery and genetic research has been constrained by trial-and-error methods that are extremely cost-intensive. With AI, we're entering an era where whole-genome sequencing can be done in hours instead of weeks, and AI models can predict molecular interactions with stunning accuracy. This leap in computational power means we're not just speeding up what we already do - we're enabling entirely new approaches to medicine. As sequencing becomes cheaper and more accessible, the efficacy of drugs only stands to increase. Think about a biotech firm that sequences the DNA of thousands of cancer patients. With AI, it can quickly identify recurring mutations and design drugs that specifically target those genetic flaws, potentially leading to more effective and personalized cancer treatments. As the traditional PBM model comes under pressure, new pharmacy models emphasizing transparency, affordability, and direct-to-consumer pricing could also gain traction. GoodRx (GDRX) offers cash pay alternatives and coupons that bypass PBMs. Mark Cuban's Cost Plus Drugs also aims to offer radically transparent pricing by selling drugs at cost plus a flat markup. Even Amazon has entered the arena to offer direct-to-consumer shipments and a direct-pay option that's potentially cheaper than using insurance. Amazon Pharmacy is expected to be available to over half of the U.S. by the end of 2025. Ultimately, what was once a sleepy and steady sector of the US economy is starting to become much more dynamic. Drug innovation is accelerating, and established insurer and PBM business models are coming under scrutiny. In a shifting landscape there will be opportunities for savvy investors who look for innovation and can handle volatility and uncertainty.
Reuters
4 days ago
- Business
- Reuters
Express Scripts sues to block Arkansas law barring PBM ownership of pharmacies
CHICAGO, May 29 (Reuters) - Express Scripts and several of its affiliated pharmacies filed a lawsuit on Thursday asking an Arkansas federal judge to overturn a state law set to go into effect next year that would ban pharmacy benefit managers from owning pharmacies. The lawsuit, filed in the U.S. District Court for the Eastern District of Arkansas, says the law puts an unconstitutional restriction on interstate commerce by burdening out-of-state companies like Express Scripts, which is based in St. Louis. Express, one of the nation's largest pharmacy benefit managers, seeks a declaration that the law is unconstitutional and an order barring its enforcement. Sam Dubke, a spokesperson for Arkansas Governor Sara Huckabee Sanders, who signed the law in April, said in a statement, "these big drug middlemen are only attacking Arkansas in the courts because they're worried other states will join Governor Sanders in fighting for patient access and affordable prescriptions." The lawsuit names the members of the Arkansas State Board of Pharmacy, which regulates the state's pharmacies. In a statement, Express Scripts, which is a unit of the Cigna Group (CI.N), opens new tab, said the law will likely force it to close some retail pharmacies and bar it from mailing prescriptions to thousands of Arkansas residents through its mail-order pharmacy business. 'While Arkansas politicians claim this law was designed to lower drug prices and increase access to medications, it will do just the opposite,' said Andrea Nelson, Cigna's chief legal officer. Pharmacy benefit managers serve as intermediaries, negotiating prescription drug prices with drugmakers on behalf of employers and health plans. They also often manage pharmacy networks and operate mail-order pharmacies. Arkansas' law, which is set to go into effect in January, bars PBMs from receiving permits to dispense prescription medication and revokes PBMs' existing permits, according to the legislation. The law is meant to cut down on anticompetitive behavior by the PBMs, which set the prices for the drugs they dispense through their pharmacies, according to the governor's office. Their business practices have drawn increasing scrutiny in recent years from U.S. lawmakers looking to lower drug prices, and from the Federal Trade Commission, which accused the three largest PBMs of driving up the cost of insulin drugs.
Forbes
6 days ago
- Business
- Forbes
Tying U.S. Drug Prices To Foreign Markets Risks Innovation And Lives
"The higher prices that Americans pay for drugs cover a disproportionate share of the research and ... More development efforts from which the entire world benefits," writes health policy expert Sally C. Pipes. Earlier this month, President Donald Trump signed what he called 'one of the most consequential Executive Orders in our Country's history.' The order is essentially an updated version of his administration's 2020 'Most Favored Nation' policy. It directs pharmaceutical companies to tie the U.S. prices of their drugs to the lower prices that other developed countries pay. It certainly seems unfair that Americans pay more for drugs than foreigners. So the president's insistence that drug companies offer Americans the best deal they provide worldwide has intuitive appeal. But the economics behind this proposition are much more complicated. The higher prices that Americans pay for drugs cover a disproportionate share of the research and development efforts from which the entire world benefits. Like it or not, we have become the world's medicine chest. Pegging drug prices here to those in other countries would yield minimal savings for the United States and devastate funding for biomedical research. In the long run, pharmaceutical companies would develop fewer novel lifesaving drugs. And that would consign Americans and foreigners alike to undue suffering. Other countries pay less for pharmaceuticals because their governments forcibly cap prices. If drug companies want to sell their wares within that country's borders, they have to assent to the foreign government's price. That strategy has trade-offs. For starters, manufacturers prioritize markets where they can garner higher returns. So they tend to delay launching their drugs in countries with price controls. Across the G20 group of middle- and upper-income nations, just 38% of new medicines launched between 2012 and 2021 were available as of October 2022. In the United States, 85% of those novel drugs were available. Even in our peer countries, foreign patients lack access. Just 61% of those drugs were available in Germany, 59% in the United Kingdom, 45% in Canada, and 34% in Australia. One study found that European countries with their own versions of 'most favored nation' policies experience delays of up to one year for new drugs. Such launch delays reduce life expectancy for patients in these countries. Drug companies prioritize markets where they can charge higher prices—like the United States—because drug development is risky and expensive. It takes about $2.6 billion and more than a decade, on average, to bring a single new drug to market. And roughly 90% of drug candidates fail to gain approval. The attractiveness of the U.S. market to drug makers has also resulted in significant benefits for our economy. Currently, two out of three new drugs are developed in the United States. Where will that drug research go if the United States imports foreign price controls with a 'most favored nation' policy? It will likely go to China—if it does not disappear entirely. Already, the outlook for drug research in the United States is growing bleaker. The price controls established in Medicare by the Democrats' 2022 Inflation Reduction Act are projected to result in the development of 139 fewer drugs by 2035. That could include cures for rare cancers or Alzheimer's. But even if the drugs that go undeveloped would simply offer moderate improvements on chronic diseases, sacrificing them is still too high a price to pay for potential short-term price reductions. And about those 'reductions.' Should the Trump administration successfully implement a most favored nation policy, drug companies are likely to respond by raising prices in other countries—or pulling them from the market there altogether. According to a 2022 study by researchers from UCLA, Stanford, and France's University of Toulouse Capitole, 'reference pricing induces a substantial increase in the prices charged in reference countries but only a modest decrease in the prices charged in the US.' Poorer countries are ill-equipped to handle higher prices. So Americans may save figurative pennies—while foreigners lose access to lifesaving drugs entirely. There are better ways to lower drug prices in the United States. Pharmacy benefit managers and other middlemen claim roughly half of every dollar spent on prescription drugs in this country. Congress and the administration can rein in their market-manipulating abuses that drive up prices for consumers. The administration can also insist that other countries pay prices commensurate with the value of new medicines as a condition of striking trade agreements with the United States. Doing so would help ensure that foreign countries pick up a bigger share of the globe's research and development tab. The laws of economics are stubborn things. If the Trump administration really wants to do the most good for patients in the United States and worldwide, they'll scrap this most favored nation order.
Forbes
7 days ago
- Health
- Forbes
U.S. Prescriptions Meds Pricey For Government And Households
NEW YORK, NEW YORK - JULY 23: Prescription drugs are displayed at NYC Discount Pharmacy in Manhattan ... More on July 23, 2024 in New York City. A major issue in the presidential race between both parties is the increase in prescription drug prices, an issue that especially energizes older voters. From 2022 to 2023 the average increase of drug prices in the U.S. was 15.2%, higher than the inflation rate, according to the U.S. Department of Health and Human Services. (Photo by) U.S. spending on prescription medication is the highest in the OECD, data from the organization shows. President Donald Trump on May 12 signed an executive order to try and change this status quo. However, experts have said the feat will be difficult due to the complicated structure of international medication prices and a long timeline ahead. Trump in January and April had already revoked the former administration's and then signed his own executive order aimed at lowering prescription drug cost in Medicare and Medicaid. This past Monday, yet another order stipulated that new pharmaceutical production plants in the country can be approved faster, among other things. This is in preparation for upcoming pharmaceutical import tariffs, which are believed to nudge the prices of drugs in the country towards the more expensive rather than the opposite. This chart shows the spending on prescription medication in selected countries in U.S. dollars per ... More capita (2022 or 2023). The May 12 order suggest that the U.S. will present drugmakers with maximum prices they can charge for their medications, based on a so-called 'most favored nations' approach, i.e. prices comparable to what other rich nations charge. Inside of the OECD, this is significiantly less, even when applying purchasing power parity. While U.S. prescription drug spending in 2022 stood at $1,218 per resident on average, this was $1,008 in Germany, $889 in Canada and $757 in Japan in the most recent available years. In some nations, the average cost of prescription drugs was even lower, at below $500 in Spain, Australia and Norway, for example, and at around $350 in the United Kingdom. Interestingly, at least when applying a PPP approach, household out-of-pocket spending on prescription medication wasnt the highest in the United States as the country was overtaken by eight out of 32 countries, including Hungary, South Korea, Norway, Switzerland and Canada. KFF identified the May 12 executive order as a wishlist rather than as a actual tool to lower prices. While it says that the Department of Health and Human Services shall provide a framework to enforce these price levels, this could be years in the making, fraught with legal challenges and get even more complicated if Congress would need to get involved. Drugmakers have long objected to U.S. price caps as they have maintained that the United States is where they earn the money to finance future innovation. Reports have, however, cast doubts on this narrative, as pharmaceutical companies were found to spend most of their budgets on non-research-related items, high salaries and even stock buybacks. While it is true that drugmakers earn a lot of money in the United States due to other countries capping prices, negotiating more or even rejecting new drugs, this doesn't necessarily mean that other nations are missing out. New treatments are to the contrary often rejected overseas due to their limited improvements over cheaper, existing treatments. However, it is possible that a future change of course in the U.S. would have a chilling effect on drug research by companies and could influence the slight edge the U.S. is thought to have in the quality of care over other developed nations. Another issue influencing high U.S. drug prices are stronger parent protections, limiting generic medications at times. The United States is also not sufficiently regulating middlemen like pharmacy benefit managers. These act as intermediaries between insurers and patients on the one side and pharmacies and drug manufacturers on the other. But since they are part of health care companies, they usually act in their owners' interest by marking up prices, chosing more expensive medications, asking for fees from manufacturers and the like, all while claiming to create savings through bargaining. Charted by Statista
Yahoo
22-05-2025
- Business
- Yahoo
Trump Says He Just Invented a 'New Word,' Which Is Now the 'Best Word.' It's Been in Use Since the 1500s
President Donald Trump put his unique vocabulary on display once again this week. On Monday, May 19, the president signed a new executive order that gives the manufacturers of prescription drugs 30 days to meaningfully lower the cost of their medications. If that deadline isn't met, the U.S. Department of Health and Human Services, led by Robert F. Kennedy Jr., will be tasked with developing new regulations that equate U.S. drug prices with lower costs paid in other countries. In explaining his plan to reporters, Trump had something of a linguistic revelation. 'Basically, what we're doing is equalizing. There's a new word that I came up with, which is probably the best word,' he said. 'We're gonna equalize, where we're all gonna pay the same. We're gonna pay what Europe's gonna pay,' he continued. Of course, Trump isn't the first to use the word "equalize." The Merriam-Webster Dictionary says the first known usage of the word happened in 1599, and it remains common in modern times. The president himself has even used the word multiple times in the past, including in his address to a joint session of Congress on March 5. While claiming that the United States had contributed significantly more to Ukraine's defense against Russia than other European allies, Trump said, "Biden has authorized more money in this fight than Europe has spent by billions and billions of dollars. It's hard to believe that they wouldn't have stopped it and said at some point, come on, let's equalize. You got to be equal to us. But that didn't happen." However, this may, in fact, be the president's most viral vocabulary moment since he became fascinated with the word "groceries" while giving his "Liberation Day" speech on April 2, announcing sweeping tariffs and promising savings for U.S. consumers at the supermarket. 'It's such an old-fashioned term but a beautiful term: groceries," he mused. "It sort of says a bag with different things in it." Read the original article on People
