Drugmakers use practices that are “unsustainable, unjustified and unfair to patients and taxpayers,” according to findings from a report released in December by the U.S. House of Representatives’ Committee on Oversight and Reform.
As a result, millions of Americans have been “unable to afford lifesaving medications,” the report found.
Around 3 in 10 Americans say that they haven’t taken their medications as prescribed due to concerns about cost, according to a Kaiser Family Foundation survey from October 2021.
The survey also found that the majority of Americans — across all parties — say drugmaker profits are a major factor in the high prices of prescription drugs.
But experts say that there’s more than just drug companies behind the rising prices. Intermediaries including wholesalers, health insurers, pharmacies, and pharmacy benefits managers can also impact the cost of drugs.
The 269-page House report is the result of a nearly 3-year investigation that involved a review of more than 1.5 million pages of internal drug company documents and five congressional hearings.
“The investigation has provided a rare glimpse into the decision-making of many of the world’s most profitable drug companies,” wrote Rep. Carolyn B. Maloney (D-NY) in a preamble to the report.
Three of the drugs included in the report are insulin products, whose high prices have long made this medication unaffordable for many people with diabetes.
The listed price of Humalog (Eli Lilly) has increased 1,219 percent since it was launched, Lantus (Sanofi) 715 percent, and NovoLog (Novo Nordisk) 627 percent, the report found.
These three companies, according to the report, control approximately 90 percent of the global market for insulin, which was first developed as a drug in the 1920s.
Medicare, the government health insurance program for Americans 65 and older, is currently not allowed to negotiate price discounts with drug companies.
If it were, the program could have saved more than $16.7 billion on insulin products from 2011 through 2017, the report found.
Other prescription medications included in the report that have seen large jumps in list prices include Mallinckrodt’s H.P. Acthar (over 100,000 percent), Teva’s Copaxone (825 percent), Amgen’s Enbrel (486 percent), AbbVie’s Humira (471 percent), and Pfizer’s Lyrica (420 percent).
Collectively, companies have increased the prices of the 12 drugs included in the report more than 250 times.
Drugmakers have “raised prices with abandon,” the report found, especially when they are able to delay or block competition, such as from cheaper generic versions of their drug.
Amgen and Mallinckrodt declined to comment. AbbVie, Pfizer, and Teva didn’t have an immediate comment.
Drug companies point to the patient-assistance programs that they offer, which help offset people’s out-of-pocket drug costs.
Sanofi and Eli Lilly spokespeople both pointed to the companies’ patient-assistance programs, which are available to both insured and uninsured people.
However, the House report claims that these tools are designed to “garner positive public relations, increase sales and raise revenue.”
Dr. Mariana Socal, an associate scientist of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health, said patient-assistance programs are an example of drug companies stepping in “to solve the problem that they helped create.”
While patient-assistance programs make manufacturers look good, they are also good for the companies’ bottom lines.
“We have known for a long time that a drug manufacturer having a patient-assistance program is actually an investment by the company,” said Socal. “And one that has a high return on investment.”
If an insured person can’t afford their co-pay or co-insurance for a drug and doesn’t buy it, the drug company doesn’t make any money.
In contrast, if a manufacturer offsets a person’s out-of-pocket costs, the person could end up paying nothing for the drug. But the insurance company will still pay its portion of the cost of the drug.
“So the drug manufacturer will still be making more money, compared to when the patient doesn’t get the drug because they can’t afford it,” said Socal.
The amount that drug companies spend on patient-assistance programs is often a small fraction of what they make from the drug.
For example, Pfizer’s spending on its patient-assistance programs related to Lyrica from 2015 to 2017 accounted for less than one-tenth of one percent of the amount it earned in the United States for the drug over the same period, according to the House report.
The report highlighted a number of industry practices used by companies to generate larger net profits.
For the pain medication Lyrica, the report says that its manufacturer, Pfizer, used patent protections, market exclusivities, and other tactics to fend off competition from lower priced generic medications.
For example, the report said, the company obtained permission from the Food and Drug Administration (FDA) to market the drug exclusively for pediatric use. Documents reviewed by the House committee show that the company estimated this would generate an additional $1.6 billion in revenue.
Companies also used “product hopping” to extend their monopoly on a drug, a practice in which a company makes minor changes to the formulation of a drug in order to obtain a new patent.
This prevents cheaper, generic versions of the medication from entering the market. Patients are then switched to the reformulated, higher-priced drug.
AbbVie, Pfizer, Sanofi, and Teva all engaged in product hopping, according to the report.
The pharmaceutical industry contends that focusing on the list price for medications is misleading.
List price is higher than the net price. A drug’s net price equals its list price minus all rebates, discounts, and fees.
Since 2012, the net price of insulins produced by Sanofi declined by 53 percent, according to a company spokesperson. In addition, the net price of Lantus for commercial and Medicare Part D plans has fallen almost 45 percent.
However, the House report found that the net prices of many of the 12 drugs reviewed by the House committee are “significantly higher” than when the medication were introduced.
List price also doesn’t always reflect what people pay out of pocket, especially if they are insured. Health insurers — other than Medicare — will negotiate lower prices for many drugs.
An Eli Lilly spokesperson said the average monthly out-of-pocket costs for the company’s insulin product has dropped 27 percent over the past four years.
Socal said high list prices can still be a problem for insured people if the insurer charges them a percentage of the drug cost, what’s known as co-insurance.
“The reason why these drugs are so unaffordable to patients is because these percentages get calculated off the list price of the drug, or something very close to the list price,” she said, “and not off the negotiated price of the drug.”
People who pay co-insurance for a drug are also vulnerable to price fluctuations. If the cost of a drug goes up sharply during the year, so will the amount that an insured person pays.
In contrast, people who have a fixed copayment for the drug are “shielded from the price fluctuations that can happen,” said Socal.
While the House report focused mainly on the role of drug companies, drugs don’t just go from manufacturer to patient.
There are a number of other players along the way, including wholesalers, health insurers, pharmacies, and pharmacy benefits managers (PBMs).
The pharmaceutical industry and other critics have pointed to PBMs as a key reason for the steep rise in drug spending in the United States. These intermediaries manage drug benefits on behalf of Medicare drug plans, private insurers, and other payers.
“The information in the [House] committee’s report reflects a limited picture of the efforts put forth by our company and other companies to manage [drug] formulary access,” said a NovoNordisk spokesperson, adding that “too often, health insurance is failing people with chronic diseases.”
Republicans on the House Oversight Committee released their own report focused on the role of PBMs in rising drug costs, saying PBMs “use their market leverage to increase their profits, not reduce costs for consumers.”
Some research shows that PBMs and other intermediaries do impact prescription drug spending.
In one of those studies, Karen Van Nuys, PhD, executive director of the Value of Life Sciences Innovation research program at the USC Schaeffer Center for Health Policy & Economics, and her colleagues examined insulin spending between 2014 and 2018.
Their research was published last year in JAMA Health Forum.
They found that although the list price for insulin increased between 2014 and 2018, the total amount being spent on insulin in the United States has remained fairly stable over those 5 years.
However, the net price received by drug makers decreased 31 percent during that time. In contrast, intermediaries, such as PBMs and pharmacies, earned a larger share of the overall insulin spending.
For every $100 spent on insulin in 2014, manufacturers received $70 and intermediaries in the supply chain received $30. By 2018, the share received by manufacturers had declined to $47, with intermediaries now receiving $53.
“It’s a very different story than the one where you just focus on manufacturers and the wholesale acquisition cost [or list price],” said Van Nuys. “Manufacturers are actually taking significantly less in 2018 than they were in 2014 for producing the same [insulin] product.”
“And the intermediaries are taking a lot more, to the point where by 2018, more than half of what we spend on insulin doesn’t go to the manufacturer, it actually goes to the intermediaries.”
Van Nuys said finding a long-term solution to high drug costs in the United States requires a more holistic approach than the House committee’s report, which focused mainly on manufacturers.
“They weren’t even looking for problems in the rest of the supply chain,” she said. “But if you’re only going to focus on one agent, you’re going to miss half the problem.”
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