Supply chain and drug pricing reform required to lower US healthcare costs

A brief by the Center for Medical Economics and Innovation at the Pacific Research Institute (PRI), US argues that reform of the supply chain and drug pricing system is required to lower US healthcare costs, rather than government-imposed price caps and regulations.

“Politicians are promoting drug price caps and increased regulation in a futile attempt to increase health care affordability,” said Dr Wayne Winegarden, brief author and director of PRI’s Center for Medical Economics and Innovation. “Experiences worldwide have shown that more government control will worsen America’s health care problems – threatening innovation and limiting access to life-saving medication – without lowering costs.”

Studies have found that drug prices are not behind the rising US healthcare costs, because generics save the system $293 billion annually. Instead, the complex supply chain means patients are overpaying for co-pays by as much as $2.1 billion, according to a 2013 study.

The brief highlights the pitfalls of pharmacy benefit managers (PBMs), which it calls “middlemen to reduce administrative costs,” that have “little incentive to give rebates to patient and instead pocket the profits themselves.” It particularly cites biosimilars as an example of this behaviour; PBMs favour original biologics over biosimilars due to their higher list price, rather than the cheaper alternatives which could increase affordability.

“To lower drug prices and health care costs, policymakers should reform the complex drug supply system, increase transparency and put an end to PBM middlemen pocketing discounts instead of patients,” said Winegarden. “Enacting new price controls and more government regulation, however, will only exacerbate America’s health care affordability problems.”

Winegarden suggests in the brief the that the current PBM rebate negotiation system should be replaced by a system based on the net price paid by the patient or insurer. Claiming this practice would eliminate incentives for favouring medications with more expensive list-price and higher rebates. He also suggests requiring PBMs to publicly publish rebates, discounts and price concessions, so that patients and doctors can more easily recognise the costs of alternative medicines.