The head-spinning experience of navigating the pharmaceutical pricing world came to town Feb. 28, leaving lawmakers and laypeople alike with no greater understanding of why the entire scheme leaves consumers light in the pocket.
The basics are clear. Drug companies set the price for their drugs, but rarely does anyone pay it, Peter Fotos, PhRMA’s Chicago-based regional director for state advocacy told the House Health Policy Committee.
Generally, health insurers go through this relatively new layer of bureaucracy called Pharmacy Benefit Management (PBM) companies to negotiate cheaper rates based on bulk purchases. Then there are other assorted rebates and discounts patients can score. When the smoke clears, about 33 percent of the initial list price disappears.
In 2017, pharmaceutical companies paid $153 billion in rebates, up from $74 billion in 2012.
All of this led Rep. James Lower (R-Cedar Lake) to ask the obvious question: “Why do the clawbacks? Why do the rebates? Why not have a lower price to begin with and not go through this bureaucratic nightmare?”
The answer: That is the way it is. Apparently, there are rebates available for people buying in volume. Everyone wants the sweet deal. Human resource people do not want to mess with it so these PBMs take care of it for them.
“These discounts are supposed to be passed on to the consumer,” Fotos said. “Sometimes they are. Sometimes they are not.”
The exchange marked the frustration that is spurring House Health Policy Committee Chair Hank Vaupel’s (R-Fowlerville) newest attempt to bring some consumer transparency to the whole system.
His HB 4154 requires big drug companies to give the Department of Health and Human Services an accounting breakdown for drugs that have seen a 25 percent price increase over the past five years.
How much for research? How much on marketing? What does the rebate menu look like? A third-party auditor would verify the dozen or so numbers submitted to the state.
If a drug company does not do this by May 1 every year, it faces a $100,000 fine for every month the report is late.
“We’re trying to add some transparency to this so people will know how these drugs are priced,” Vaupel said. “Why does the same drug have such significantly different prices? Where are the rebates and discounts?”
Vaupel said he is not typically a fan of asking private industry to do more work for government, but he sees his bill as an “honest attempt” to help average people get their medicine at a cheaper rate.
He did not end up moving a similar bill out of his committee last term and he will not get a chance to do it this year.
HB 4184 is sitting in the House Government Operations Committee based on a leadership decision. Chair Jason Sheppard (R-Temperance) said he’s familiar with the bill and is asking these questions: Will this bill actually help lower drug prices or is this more paperwork, a new state mandate on a predominately federally regulated system?
Sheppard says he does not have a timeline on moving the bill, but that doesn’t mean things won’t change. At this point, he is in the information-gathering stage.
He understands Ohio was able to save some money for its Medicaid system with what it is doing with pharmaceuticals. Could Michigan do something similar?
Rep. Frank Liberati (D-Allen Park), Health Policy’s minority vice chair, sees the issue in two parts. How can consumers save money at the point of purchase? And can pharmaceutical companies defend their pricing structure?
“I just don’t want to confuse the two issues. They deserve their own conversation,” he said.
This is coming from the father of two sons with significant health issues and substantial involvement with the modern healthcare system. He is approaching the issue from a much different perspective.
“How do you put a price on something that is priceless?” he said.
This story presented in cooperation with MIRS, a Lansing-based news and information service.