It’s a fact that Americans—and, by extension, U.S. employers—pay the highest prescription drug prices in the world.
In fact, according to a newly issued presidential executive order, the prices Americans pay for brand-name drugs are more than three times those of other countries that belong to the Organization for Economic Co-operation and Development (OECD). According to the same government fact sheet, the United States has less than 5% of the world’s population, yet it funds roughly 75% of global pharmaceutical profits.
That data directly impacts the pharma-related benefit costs paid by employers, according to Robert Andrews, CEO of the Health Transformation Alliance (HTA), a coalition of self-insured employers.
Andrews—a former Congressman from New Jersey and an original author of the Affordable Care Act, who played a key role in its passage and implementation—advocates for the healthcare system to shift from the current fee-for-service system to value-based care. He also believes drug makers should not be rewarded for just putting a product on the market, but rather for their product driving real, positive outcomes.
“Like essentially everyone else in the U.S. economy, employers would love to see lower costs to acquire prescription drugs, so we’re glad the current administration is focusing on solving that problem,” Andrews says.
The recent executive order directs drug manufacturers to provide American consumers a price compatible with the lowest cost point available abroad. Yet, critics say, the move could just prompt manufacturers to raise prices worldwide, and the order also doesn’t address cost issues like pharmacy benefit managers inflating prices. The future of the order, which is expected to be challenged in court, is unclear, as is its scope, with some suggesting it only applies to Medicare and Medicaid plans.
Risks of the current plan
A main concern of the HTA, Andrews says, is that if prescription drug prices are lowered only for public payers—via Medicare and Medicaid—there’s a risk that the drug manufacturers will just shift costs onto higher prices for commercial payers like employers.
If there is a cost shift onto employers, employees would be negatively affected in two primary ways:
- Higher costs. Employees would pay more, he says, noting that every prescription drug benefit plan splits the cost between the employers and the employees in some way, so by definition, employees would be paying more out of their pockets.
- Lower drug adherence. Andrews explains that the cost might be so much more out of employees’ pockets that they would not buy the drug at all and, by extension, would not receive needed care.
“We’re concerned that both employers and employees would be adversely affected if there is cost shifting,” Andrews says.
Value-based pricing: an antidote to high prescription drug prices
Instead, Andrews says, the HTA advocates for value-based pricing. Instead of asking questions like, “How many pills or doses did you buy?”, the questions that should be asked include, “How much money did the drug save in avoided operations or avoided strokes?” or “How much benefit did it generate? How can part of that benefit be captured in the price of the drug?”
“We believe that value-based pricing is a way that you can continue innovation and cures, but have a fair price for all payers in the system,” Andrews says. “We aren’t in favor of lowering drug prices for the sake of lowering drug prices. Rather, we are in favor of drug prices reflecting the value the drugs create.”
Andrews offers two main principles to guide the development of more effective approaches to out-of-control prescription drug prices:
- Principle 1: The price of a drug should be tied to the medical results it achieves. For example, he explains, a statin, which is tremendously effective in preventing heart attacks for people with high cholesterol, would be worth a lot. This is because, in the event of a heart attack, the cost of ICU admissions, ambulance rides, emergency room visits and heart surgeries is very high.
- Principle 2: The middlemen—particularly on the sales side—should represent either the buyer or the seller, but not both. The HTA does favor paying PBMs based on the value they are creating, but a concern is that too much of the price of the drug is going to middlemen, and it’s not commensurate with the value.
“If those two principles are enumerated in what President Trump eventually does, we think it would be a very positive development,” Andrews says.
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