Jim de Bree: Legislation seeks transparency in drug pricing

Jim de Bree
Jim de Bree

Two years ago my wife had foot surgery, and after that she needed a walker to get around. We went to the medical equipment vendor recommended by her surgeon and we found that the walker was twice as expensive if we paid for it through our insurance as it would be if we paid cash. The vendor told me the same economic arrangement applies to prescription medication.

So I went to my pharmacist and asked him if we would receive a discount by paying cash. To my astonishment, I was told we would. He also said the pharmacy could not offer the cash discount unless a customer specifically asked about it.

I called my employer’s benefits department to inquire about this, and workers there got my employer’s insurance carrier on the line. The insurance carrier told me that what I experienced was not possible because the carrier negotiate the lowest prices for medication and medical equipment.

In retrospect, I believe that my employer and I did not get the complete story from the insurance carrier.

The pharmaceutical industry markets its products in a convoluted, byzantine delivery system that is understood by few.

Senate Bill 17, which cleared the state Senate last May, is one of several bills moving through the California Legislature seeking to provide greater consumer transparency around prescription drug costs. Specifically, the bill requires drug makers to notify health plans and other purchasers of prescription medications about price increases 60 days before the price increase goes into effect.

The bill would further implement a reporting requirement by health care plans of the 25 most frequently prescribed drugs covered by the plan, the 25 most expensive drugs and the 25 drugs whose cost increased the most in the previous year.

The purpose of the legislation is to promote greater transparency into the pricing of prescription medications.

A recent Los Angeles Times column by Michael Hiltzik discusses a business practice called prescription “clawbacks” (https://www.latimes.com/business/hiltzik/la-fi-hiltzik-clawback-drugs-20170809-story.html.

The clawback is the result of an intermediary called a “pharmacy benefit manager,” or “PBM,” who negotiates drug prices on behalf of insurance companies. Mr. Hiltzik described the situation as follows:

“PBMs negotiate drug prices with drug companies on behalf of insurance companies and other payers, then communicate these prices to druggists at the retail level. The druggists are expected to charge consumers whatever their insurers designate as a co-pay.”

Mr. Hiltzik also discussed a recent class action lawsuit brought against a major PBM alleging that, when the negotiated price is less than the amount of the co-payment collected from the consumer, the druggist is required to remit some portion of the difference to the PBM – hence the term “clawback.”

In some cases, including that of my insurer, the PBM is owned by the insurance company. That may explain the response I got when I made an inquiry of my insurance company about being able to get a better price by paying cash.

In her recently published book “An American Sickness — How Healthcare Became Big Business and How You Can Take It Back,” Dr. Elisabeth Rosenthal, editor in chief of the Kaiser Health News, calls PBMs “the invisible robber barons.”

California SB-17 is designed to promote greater transparency around drug pricing generally and will undoubtedly result in greater scrutiny being placed on PBMs.

Naturally, the pharmaceutical companies are lobbying heavily against SB17 and several companion bills that are being considered by the California Assembly. Last year, pharmaceutical companies paid for advertisements alleging that veterans would have to pay more for their prescriptions if Proposition 61 passed.

Prop 61 failed, but you may recall that if it had passed it would have reigned in taxpayer-funded pharmaceutical costs for California’s Medi-Cal program.

Five states, including three with Republican-controlled legislatures, have already passed laws prohibiting clawbacks from the sale of prescription drugs by pharmacists to PBMs.

SB17 may result in California passing anti-clawback legislation similar to that enacted by other states.

Jim de Bree is a retired CPA who resides in Valencia.


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