Recently, Dr. Robert Popovian, Erin Delaney, and Dr. Michael Mandel published an editorial for the Progressive Policy Institute, entitled, “Are we on the cusp of a new drug pricing paradigm?” In the editorial, Popovian, Delaney, and Mandel note that while the “dramatic decline in insulin prices” may have started the process, it is starting to spread to other brand drugs as well. They note that it is an “unintended but welcome result” of different pressures, including legislative, regulatory, and market pressures felt by the biopharmaceutical industry.
Popovian, Delaney, and Mandel note that the three major insulin manufacturers opted to sell their medicines at a low out-of-pocket price for all patients. This is a change from the prior list prices, which included many rebates, discounts, and fees because of the pharmacy benefit manager programs (PBMs) and state Medicaid programs. However, as the authors note, by “cut[ting] out the middlemen, the PBMs, and others who benefit handsomely by keeping some or all of the rebates, discounts, and fees provided by those companies,” patients are reaping the financial benefits.
The authors note, however, that one brand manufacturer (Janssen) has actually cut out all middlemen and started to sell its diabetes medicine directly to patients through an “innovative retail pharmacy outfit,” where the price is half of the drug’s average retail price. The retail pharmacy, Cost Plus Drug Company, is owned by Mark Cuban and has started to sell Invokana and Invokamet, two diabetes drugs manufactured by Janssen.
These changes have helped diabetic patients save on their deductibles and co-insurance costs since the out-of-pocket costs are now based on retail prices, not the significantly lower price that PBMs negotiate and pocket the difference.
The authors note that this innovation has stemmed from “legislative and regulatory changes” that have increased “the manufacturer’s appetite to re-evaluate their pricing principles,” and cite four specific activities that may be prompting the industry to make these changes.
One change is the scrutiny of drug prices – especially insulin prices. The last few years, patient stories have been publicized about the way they sometimes have to ration their insulin because of the high prices, leading to illness and potential death. Authors note that patients who are forgoing insulin and other lifesaving therapies can put significant pressure on policymakers and manufacturers.
Additionally, the Federal Trade Commission (FTC) has started to investigate PBMs and the way they operate. This investigation has resulted in renewed calls for evaluating the original intent of the formularies and whether PBMs still serve those intentions today.
Third, the Inflation Reduction Act (IRA) also included language that allowed for enforcing potential price setting by the federal government. Such language may have prompted the pharmaceutical industry to rethink its pricing strategy and potentially cut prices and reduce the usage of PBMs and other inflationary pricing methods. The reduction of prices may also result in the Center for Medicare and Medicaid Services (CMS) re-evaluating which medicines are forced into the price setting scheme.
Finally, the authors note that ending the capping of Medicaid rebates at 100% of the Average Manufacturer Price (AMP) may prompt industry to take additional action to further reduce their prices. Companies that have products with high list prices and significant rebates may have to pay Medicaid to cover those drugs. Such a negative consequence may have prompted companies to reduce their prices to avoid this problem.
Popovian, Delaney, and Mandel conclude that “the primary losers of the price cutting and new pricing” will be PBMs and others who tend to benefit from higher list prices (and therefore high rebates) while patients “may finally have found a path to the savings they have been asking for.”