My fellow Americans, medical innovation is the beating heart of health care. Absent new drugs and vaccines for a wide range of illnesses, including HIV, heart disease, cancer and hepatitis C, we would spend more on health care and insurance premiums and get less for it. Our lives would be shorter and less productive.
For most Americans, access to new medicines is not a problem. Generic versions of off-patent medicines comprise 90 percent of all prescriptions written. Over the past few years, the average out of pocket costs for drugs has declined. So too have the net price of medicines. In fact, while there more new medicines for unmet needs than ever, prescription drugs as a percentage of health care spending has remained stable at 10 percent.
At the same time millions of Americans, those with the rarest conditions and fewest options have had to pay more, much more for their medicines than they can or should. That’s because pharmacy benefit management companies — the middlemen that handle drug coverage for almost every American control what medicines you can get and how much you have to pay.
Instead of maximizing health, prescription drug benefits are designed to maximize revenue. Indeed, these Americans are caught up in an extortion scheme in which drug companies, pharmacy benefit managers, insurance companies and even the government participate.
And the goal of this extortion is to extract as much cash from drug companies in the form of rebates paid in exchange for a pharmacy benefit manager and health plan covering a medicine. Rebates and discounts pocketed by PBMs, health plans and hospitals are 40 percent of the retail price of drugs. In fact, rebates that are generated when you fill a prescription total $130 billion a year. Nearly a third of that money from less than the 3 percent of Americans with cancer, HIV, autoimmune disorders and rare diseases. Yet, these are the same people who pay a share of the retail price of a drug, something that can cost thousands of dollars a year.
That’s what happened to Kristin Agar, who was diagnosed with Lupus but can’t afford the drug that could keep her health. Insurance pays 80 percent of the retail price of $2500 a dose and she has to pay 20 percent of that, about $1000 a month, on top of insurance premiums and other medical expenditures. As she told the Washington Post, although she works hard and makes decent money, “I make too much money to qualify for assistance, but I don’t make enough to pay the bills,”
That money goes to PBMs, insurance companies, state Medicaid programs and Medicare, not to you to lower prices. Drug companies have an incentive to launch or raise prices as high as possible, so they can give PBMs the biggest rebates possible. PBMs and insurers then steer you to medicines that can make them the most money. Often people seeking a drug that is more effective must fail to get better or wind up getting sicker using the rebate rich drugs instead of the medicine that works best. Moreover, while PBMs and insurers pocket the rebates, you are paying a part or all of, the retail price of a drug.
Too often PBM profits come at the expense of not only of someone’s well-being but their lives. Cancer doctor and CEO of New York Cancer Specialists, Jeff Vacirca tells of a young husband with advanced melanoma and tumors attached to his brain being treated in his practice who had a potentially life-prolonging drug waiting for him at the pharmacy. But, as he wrote, “his Pharmacy Benefit Manager pumped the brakes, instead requiring that he and his wife order the medication from the mail-order pharmacy owned by that PBM — and submit a $1,000 co-pay.
By the time his wife was able to procure co-pay assistance, the young man could no longer swallow pills and passed away in the ICU. Medication that was critical to treating his cancer remained just on the other side of the clinic’s pharmacy counter, with access denied by the couple’s PBM."
As FDA Commissioner Scott Gottlieb said recently, “Patients shouldn’t face exorbitant out-of-pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries. Sick people aren’t supposed to be subsidizing the healthy.” Nor are they supposed to subsidize those hospitals, insurance companies and PBMs that make money under. Obamacare, Medicaid or Medicare.
My administration has already taken steps to make more medicines more affordable. The FDA has cleared the backlog of generic drug applications and is working hard to bring more affordable versions of biotech drugs – called biosimilars – to the market.
Unfortunately, our success in breaking lower priced medicines to market has not always led to lower out of pocket costs for consumers. FDA approved two cheaper versions of a brand biologic drug for arthritis last year. Rather than letting products compete on price, PBMs used the competition to extract even bigger rebates from the brand drug in exchange for excluding the less expensive versions from coverage. The brand drug’s list price and sales actually increased with nearly 90 percent of the price hike going into the pockets of the PBMs.
Starting today, my administration will eliminate the bribes and barriers that are pushing drug prices higher and make access to the medicines that work best for each individual affordable.
First, we are going to let people know when they are being taken advantage of. Starting next month, Medicare and Medicaid will require the disclosure of the actual net price of every drug they pay as well as the retail price for every medicine.
Second, we are going to pay for the net price of drugs, nothing more. To that end, we have stopped letting hospitals that serve the poor to get discounts on drugs and then sell them to you at the retail price.
We will expand this policy to every drug benefit program the government pays for.
Third, I have instructed Secretary of Health and Human Services, Alex Azar, to use the buying power of the federal government to get a better deal for consumers. We will, starting next year, require pharmaceutical companies, health plans and insurance companies participating in a federally subsidized health plan to reduce out of pocket drug costs of those who pay most for new medicines. We will also encourage the development and use of outcomes-based health coverage where companies provide money back guarantees to the government and consumers if their products don’t work.
HHS has already established such agreements for the use of gene therapy for cancer. But we can do more. And as part of that effort, we will allow drug companies to directly reduce net prices of medicines and out of pocket costs of Medicare and Medicaid patients. That means using charities to pay part of a higher retail drug price will be phased out in a way that does not disrupt patient access.
Fourth, we will begin to actively investigate and prosecute health plans, PBMs and drug companies that steer patients to certain medicines that generate higher rebates or impose barriers to access that are designed to achieve the same goal. Our administration is already going after a group of generic drug companies for conspiring to increase prices by over 1000 percent. Free markets benefit the consumer and spur innovation. Cartel like behavior in the pharmaceutical supply chain will be targeted and eliminated. You can count on it
Fifth, we will regard drug benefit designs that have a pattern of forcing the sickest to pay the most or to require people in need of medicines take other drugs just because they are cheaper to the plan as both discriminatory and in potential violation of anti-kickback and racketeering laws.
Finally, will eliminate the use of gimmicks and legal maneuvers to limit generic drug approvals. The FDA will waive requirements that generic and brand companies have to agree on steps to handle the distribution and testing of new medicines in favor of a more streamlined policy that will protect the public health while freeing innovators to partner with generic manufacturers in ways that benefit both.
We have seen how medical innovation has reduced the burden of major diseases in our lifetime. It is now time to ensure that those innovations today and, in the future, do not impose yet another burden by virtue of their cost.