Wednesday, 24 April, 2024

Why Your Prescriptions Cost So Much

Reading Time: 14 minutes


(The following is an excerpt from the book How to Avoid Being a Victim of the American Healthcare System by Dr. David Wilcox with minor changes to reflect the current state of affairs)

The healthcare system is very complex. Navigating it as a patient can be difficult. We are now going to learn how to handle these very profitable companies who are responsible for insuring you and setting the price points for your medications. We are going to shift our focus to costs associated with your health care so that you can understand what is happening behind the scenes.

Meet Sally, a diabetic patient who works as a Wal-Mart cashier. She is dependent upon life-saving shots of insulin to manage her blood sugar. Sally is also a single mother with three children: Alex, Heather, and Claude. Her ex-husband is serving a jail sentence for armed robbery, and therefore she receives no child support. One night after work she notices that Claude, her youngest, does not look good. He is hot, sweaty, coughing a lot, and complaining of pain in his right ear. She takes Claude’s temperature and it is 104 degrees. She takes Claude to the emergency department (ED), and after a long wait, Claude is diagnosed with an ear infection. The ED doctor gives Sally a prescription for an antibiotic and gives Claude his first dose of the antibiotic.

Sally goes to the 24/7 pharmacy because it’s now one o’clock in the morning. The pharmacist tells Sally her copay is 78 dollars. Sally is tired at this point and uses the money that she had put away to refill her insulin prescription, as she knows Claude needs this antibiotic. In the morning, after getting Alex and Heather off to the bus stop so they can attend school, Sally checks her blood sugar. It is 182 and Sally would normally take four units of insulin to get it back to a normal level. Knowing that her insulin supply is running low and not having enough money to refill it, Sally decides to take two units.

Later in the week, Sally completely runs out of insulin. Knowing that she is getting paid in five days, Sally decides not to check her blood sugar and wait until she has enough money to refill her insulin. Sally tells her mother of her decision. Her mother is also struggling, as she is disabled and living on a fixed income. Three days later, her mother calls Sally’s cell phone and doesn’t get an answer. She takes the bus to Sally’s apartment and finds her comatose, lying on the floor. The mother dials 911 and Sally is admitted to the hospital with a blood sugar of 821.

After her intensive care unit (ICU) stay the medical staff is able to regulate Sally’s blood sugar back to normal limits and discharge her from the hospital. While in the hospital Sally talked with a social worker who was able to help her find a more affordable way to obtain her insulin, but Sally now has a large hospital bill that she will be responsible for. She returns home much more in debt than if she had proactively obtained her insulin and avoided a hospital stay.

Many Americans are living one crisis away from a health care emergency. How does this happen in one of the richest countries in the world? To understand that we will need to examine what goes on behind the cloaked practices of the pharmaceutical and insurance companies who continue to rake in mega profits.

Pharmaceutical companies take advantage of illness in our pill driven society when people are at their most vulnerable. While many hospital systems run on margins or profits of one to three percent, the largest 25 pharmaceutical companies earn 15-20 percent profit. The sicker you are, the more likely the medicine you need to survive will cost more. Take for instance the high cost of cancer drugs. People with cancer don’t have a lot of options when they need medications, so the pharmaceutical companies inflate their prices.

Americans spent roughly $535 billion on prescription drugs in 2018. This is an increase of 50 percent as compared to what they spent in 2010. This far exceeds the cost of inflation, as big pharm increased prices on its most prescribed medications by 40 to 71 percent from the years 2011 to 2015. What this means is if you had a $200 prescription in 2011 and it shot up 50 percent in 2015 you would now be paying $300 for the same prescription. Meanwhile, most pay raises are approximately three percent a year meaning your pay from 2011 to 2015 on average would be 12 percent more. Your $200 prescription should only cost you $224, not $300 if it followed in line with your salary increases.

Pharmaceutical companies claim that they need to charge more for research and development, but they receive money from publicly funded research and tax breaks—in other words, your tax dollars. Since 1930 the National Institute of Health (NIH) has invested 900 billion dollars in research that formed the pharmaceutical and biotechnology sectors. Despite these investments, the typical US consumer pays more than other industrialized nations for their prescriptions. Maybe that’s why so many Americans turn to Canada and Mexico to obtain their prescriptions.

Let’s look at a common example. A vial of life-sustaining insulin for type 1 diabetics retails at around $300 in the U.S. depending on your insurance plan. The price of insulin has doubled since 2012 and in the previous 10 years, it had nearly tripled. In total, insulin prices shot up 197 percent between 2002 and 2013. It’s reported that 25 percent of people who need insulin report rationing it. This has led to needless harm and death. Recently, a 22 year old woman died due to insulin rationing. Like Sally, she was trying to save money by taking the bare minimum she needed. That cost-cutting measure cost her life.

If you are having a hard time paying for your prescriptions you have options. You can call your doctor’s office and ask them to prescribe a lower-priced medication. You can also access your local or state agencies to see what solutions they offer. Your third option is to contact www.needymeds. org or call their toll-free helpline at 800-503-6897 to see if they can help you. Never stop taking a prescribed medication due to costs.

In 2019 the U.S. Senate Committee on Finance sent a letter to Eli Lilly inquiring the reason why the price of insulin was so high when the same vial of insulin costs $48 in Singapore, $14 in India, $6 in Austria, and $0 in Italy. That’s a pretty significant cost saving compared to the United States, where it is produced.

The pharmacy companies also benefit from research and development tax credits. This credit was introduced in 1981 to encourage investment in pioneering research. The tax credit is available to companies that try to develop technologically improved products which some medications qualify for. On top of these tax credits pharmacy companies also receive a tax deduction for their marketing and advertising expenses. It must be pretty lucrative because in 1997 there were 79,000 ads for medications, including television commercials. That number exploded to 4.6 million in 2016.

Once a drug is developed it can take 20 years or more before the brand name drug is released in generic form. A new drug is patented, which means only the drug maker can produce and sell the drug for 20 years from the filing date. Usually, these new drugs are priced high, as drug companies state they are hard to manufacture. If they are lifesaving drugs, they can virtually be unaffordable. Take, for instance, the drug Zolgensma, which is a miracle drug for children born with spinal muscular atrophy. It will only set you back $2.125 million per dose.

If the drug is profitable, the drug maker can change a chemical element and extend their patent to ensure even greater profits. Behind the scenes, there is a little known practice called “pay to delay” in which a brand name pharmaceutical firm strikes a deal with a generic drug company that prohibits competition between them. Studies have found that each year these anticompetition deals cost taxpayers and consumers over $3.5 billion in drug costs by not allowing new drugs to be offered in generic form.

Yet even in the area of generic drugs, you will find no relief. While generic drugs are supposed to save us money, Teva Pharmaceuticals, the largest generic drug supplier in the world, raised its prices 9 percent in 2019 and reported 18.8 million in revenue. Take, for example, the drug Daraprim, a drug used to treat infections common among people with AIDS. When the generic company producing this drug realized that no one else was producing a generic version, they hiked the price from $13.50 a pill to $750.

In 2018 the CEOs of three major pharmaceutical firms made $90 million, while Americans spent $535 billion on prescription drugs that same year. How does this play out? A 2019 report by the Centers for Disease Control and Prevention found that for adults under the age of 65, 11.4 percent report not taking their medications as prescribed to reduce health care costs. Many times those patients end up coming to the emergency department in crisis. Once stabilized, they are given prescriptions to fill at their local pharmacy. When they arrive they often find the co-pay for the medication is more than they can afford, so they do not fill the prescriptions. They then show up again in the emergency department in crisis, and the vicious cycle repeats itself.

Joe is an unemployed factory worker who suffers from high blood pressure. One evening he has a pounding headache and develops a nosebleed. He feels so bad that he goes to the emergency department (ED) to be seen. After taking his blood pressure, which is very high, the doctor at the ED medicates him with an antihypertensive drug and prescribes him Diovan to better control his high blood pressure. Joe then goes to fill his prescription at a local pharmacy. Since Joe has been unemployed for a year he has lost his employerbased insurance and is on Medicaid. The pharmacist tells Joe his medication is not covered by Medicaid, and he needs to pay $65 for the medication. Joe, not having the $65, leaves without the medication. Joe ends up in the emergency department one week later with the same symptoms.

A little-known fact: there was a law that prohibited Medicare from negotiating drug prices up until the Inflation Reduction Act was signed into law. So, the biggest payor or insurer in America was not allowed to negotiate drug prices by law. That makes no sense because if they could buy in bulk it would drive the prices down. Yet such a commonsense law would cut into the profit of those lobbyists lining the politicians’ pockets. During the 2016 elections, the pharmaceutical industry spent $62 million to finance candidates, and they got what they paid for. In 2019 the Senate Finance Committee failed to pass an amendment on the Prescription Drug Pricing Reduction Act of 2019. This would have allowed Medicare to negotiate drug prices with manufacturers to drive down drug costs. Just remember this when you have to pay an enormous cost for your next prescription. The people we are electing are not willing to take high drug prices on at the source.

Recently, some electronic medical records (EMRs) can price what the drug will cost the patient given their insurance, and the doctor can discuss it with the patient to see if it’s affordable. This is a relatively new development and one that is sorely needed, as the majority of patients who return to the emergency department/ hospital are patients who didn’t take their medications. One hospital that was seeing quite a few of these cases decided they would simply GIVE this patient population a 30 day supply of their medications before leaving the hospital. They found this strategy was more cost effective and the patients got the treatment they needed.

Many people don’t know what a pharmacy benefit manager is. I know I didn’t until I started my doctorate and began to study what exactly are the factors that make medications so expensive. To get the full picture we must understand the history of this role. How did the pharmacy benefit manager role come to exist and what was the initial purpose? In 1968 the role of the pharmacy benefit manager (PBM) was established with the first plastic benefit insurance card. By the 1970’s they acted as intermediaries between insurance companies and pharmaceutical manufacturers by deciding prescription drug claims. In the 1980s they moved from doing this via paper to doing it electronically. In the 80’s the PBM role became a major player as health care and prescription costs were increasing. Originally the pharmacy benefit manager’s role was to recommend lower priced generic drugs to doctors to aid in keeping costs down. That changed quietly in 2007 when CVS acquired Caremark a PBM firm. The role changed from the processing of prescription transactions to managing the pharmacy benefit for health plans or insurers. By 2015 there were approximately seven lawsuits or antitrust claims stating that pharmacy benefit managers had defrauded and deceived insurance companies. In 2017 the Los Angeles Times wrote an article on how the pharmacy benefit manager role caused an increase in drug costs, especially in the area of diabetes (remember that $300 vial of life saving insulin)? Clearly, the model had changed and not for the better.

PBMs are probably handling your prescription costs and you may not even know it. If you use Express Scripts, CVS Health, or OptumRX, which process 70 percent of claim volumes—and this is not an exhaustive list—your insurance company is using a PBM. This role primarily negotiates the price of medications between drug manufacturers and pharmacies while looking out for the insurance company. Initially, they were supposed to be looking out for the costs for the patient, but with any business model that runs behind the scenes secretively, corruption can factor in. If you don’t believe me, try to call your insurance company the next time you run into a high-priced prescription and ask to speak to the PBM who negotiated the price. Just make sure you have a few hours to kill because I do not know of one person who has ever directly spoken to a pharmacy benefit manager.

A PBM sits in the middle of the distribution chain for your prescription drugs. They maintain drug formularies or lists of covered medications by the health insurers. This influences the medications you can use and also the out of pocket expenses for those medications. They use their purchasing power to negotiate discounts and rebates from drug manufacturers, which in the past they were supposed to pass on to the patient or insurance company. Sounds simple enough, right? Except the PBMs receive a much larger rebate for more expensive drugs than they do for drugs that may provide better value at lower costs. This results in higher out of pocket costs for the patient. If you are being treated for high blood pressure and your doctor prescribes you the brand name drug Lopressor and checks the box allowing you to be prescribed the generic version metoprolol, it will be the PBM who will decide what drug they fill the prescription with. Many times that decision is based on the rebate the PBM will receive.

A quick way to tell if you have a brand name drug or a generic drug is by looking at the drug name. If it starts with a capital letter it’s a brand name drug. If it starts with a lowercase letter it’s a generic drug.

Even the drug manufacturers argue the increasing rebates (which they control) and what they pay the PBMs are forcing them to increase their drug prices. Big pharms rebates to the PBM’s increased from 39.7 billion in 2012 to 89.5 billion in 2016. There is a great debate over whether the PBM’s should be able to keep the rebates they receive from drug manufacturers. Some suggest that these savings should be passed to insurers and payors to bring down the insurance premiums we consumers pay. The PBMs often pocket the rebates they receive as this business practice is shrouded in secrecy and there is no real accountability.

Another controversy is a practice that the PBMs use called “spreading pricing.” This occurs when the PBM is reimbursed by health plans for a higher price than the PBM pays the pharmacies for the drugs. The PBM usually keeps the difference. So why is this practice allowed to happen? It all has to do with the lack of transparency. The payments the PBMs generate for pharmacies are kept confidential from health plans as well as the government. Health care seems to be riddled with the lack of transparency especially in the payment models.

How does this play out in medical care? I know of an oncologist who was treating a stage 4 (worst possible stage for cancer) patient who was prescribed a chemotherapeutic drug they felt would work with the patient’s other underlying chronic conditions. The drug the doctor prescribed was rejected by the insurance company because the PBM felt the doctor could first try a lower cost option. Now, someone with stage 4 cancer doesn’t have a lot of time to mess with lower cost cancer medications. When the doctor pressed the issue, the insurance company stood its ground. When the doctor pressed them to speak to the PBM, the insurance company told the doctor this was not possible. Here we have a decision maker (the PBM) who is inaccessible but allowed to direct medical care? Those of us in the medical community are astounded that the insurer and PBM role have this much power over patients.

My female dog Pippi Lou took Viagra. That’s because Viagra was originally invented to reduce pulmonary hypertension. Only later was it discovered that Viagra had the side effect of alleviating erectile dysfunction. In any case, when the vet first prescribed the medication, my wife priced it at over $700 for a one month supply! I love my dog, but that seemed a little unreasonable.

My wife turned to the internet to figure out a lower-cost alternative. She found the GoodRx app and downloaded it to her smartphone. Using the GoodRx app, she was able to find it at $63 for a one month supply from another retailer. That’s a savings of 91 percent. Mind you, we were not using an insurance company or going through a pharmacy benefit manager. We were just trying to give our older dog a good quality of life. So how did GoodRx shave 91 percent off the price of the Viagra prescription?

As we have learned, drug prices are anything but transparent. In fact, the pharmaceutical companies try to keep them as secret as possible citing these prices are trade secrets. Most consumers do not know what their prescription will cost until they get to the pharmacy. Maybe that’s why 200 million filled prescriptions are left at the counter every year.

Most people are not aware that the price depends on the pharmacy you use. You could have a prescription that costs $450 at CVS and may cost you $250 at Walgreens. What other industry operates in secrecy like this? Could you imagine picking up a loaf of bread without a price tag and then getting to the checkout register to find out it costs you $20?

GoodRx realized this when one of the cofounders tried to fill a prescription only to realize the price of the prescription varied greatly between pharmacies. This led them to create a free app that could price prescriptions near your home or work. They do this by partnering with pharmacy chains such as Walmart, CVS, Walgreens, Target, etc., and believe it or not, pharmacy benefit managers as well as pharmaceutical companies. This endeavor has led to real-time pricing at over 70,000 locations nationwide. The company claims to have helped Americans save 10 billion dollars since they launched the app in 2011. This is critical as the 20 most commonly prescribed brand name drugs for seniors have risen 10 times more than the annual rate of inflation according to a congressional report released in 2019. 10 GoodRx claims that they helped 18 million customers who couldn’t afford their prescriptions without the use of their platform. GoodRx also had 4.4 million monthly active consumers and 15 million visitors during the second quarter of 2020. GoodRx reports that they are the largest platform out there for gathering prescription drug prices.

GoodRx works by easily allowing you to look up the name of your medication and showing you coupons from manufacturers, pharmacies, and even GoodRx. You can find the lowest price on GoodRx, then check with the pharmacy to discover what the medication would cost you using your insurance, and then using this information you can pick from the lower priced option. Many times it’s the GoodRx price, which makes you wonder why you are paying so much for an insurance plan when a free app can help you save more on your prescription costs. One thing to note is if you are paying a high out-of-pocket deductible, save your receipts as your GoodRx prescription will not be applied to your deductible at the pharmacy. Instead, it will be listed as a cash sale, meaning your insurance will never know you purchased it at that pharmacy. You can take your receipts and see if your insurance company will allow you to apply them to your deductible, but that is up to your insurance company. While there are other companies out there that can offer prescription drug price relief, GoodRx is certainly one of the first innovators in this arena.

Since the publication of my book Mark Cuban’s online generic pharmacy has been gaining momentum as a viable alternative to decrease the cost of generic medications.

Other disruptors in the prescription world include ride-share companies like Uber and Lyft. Both companies are partnering with health care organizations to make sure you have rides to and from your health care appointments. They are also getting into prescription delivery services. Uber has partnered with NimbleRx, which is an on-demand prescription platform that can be accessed by an app. You can even set the date and time for your prescription deliveries. NimbleRx is another startup company that wants a piece of the 3.5 trillion dollar health care market by offering home delivery of your prescription medications. NimbleRx already has 500 million dollars in annual revenue and usually partners with drugstore chains that have at least 10-20 stores. Their partnership with Uber should help them expand into the market significantly.

This type of model makes sense with Amazon, who recently purchased an online pharmacy PillPack, which breaks your prescriptions down into daily doses and ships them to consumers. The health care community recognizes that adherence to prescription medications can keep people out of the hospital and improve their overall quality of life. With the pandemic keeping seniors at home safely, has become a priority. Using alternative methods to deliver prescription medications has taken off and companies like Amazon’s PillPack, NimbleRx, and Uber are on the cutting edge. I am sure we will see more disruptors emerge in the marketplace.


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