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Prescription drug costs steadily soar, while price transparency is lacking

The current rebate system plays a central role driving up costs for consumers, preventing them from making informed decisions, study says.

Jeff Lagasse, Associate Editor

After reviewing tens of millions of insurance claims for the country's 49 most popular brand-name prescription drugs, a team from Scripps Research Translational Institute found that net prices rose by a median of 76 percent from January 2012 through December 2017 -- with most products going up once or twice per year.

The substantial price increases were not limited to drugs that recently entered the marketplace, as one might expect, or to those lacking generic equivalents. And the increases often were "highly correlated" with price bumps by competitors.

The researchers, publishing in JAMA Network Open, determined that the current rebate system, which incentivizes high list prices for drugs and relies heavily on privately-negotiated rebates to pharmacies, plays a central role driving up costs for consumers. The byzantine and secretive rebate system, they said, prevents consumers from making informed decisions about purchasing medications.

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The Scripps Research team obtained the prescription data from a proprietary Blue Cross and Blue Shield data set known as BCBS Axis, which includes commercial insurance claims from more than 35 million Americans covered by independent Blue Cross and Blue Shield companies in the U.S.

With a focus on the 49 most popular brand-name drugs with pharmacy claim data available for the entirety of their five-year research window, the team conducted a high-dimensional data analysis to examine each claim's total price. This was represented by the total out-of-pocket costs paid by the insured consumer and the amount paid by the insurer.

Researchers determined that prices of top-selling branded prescription drugs increased by a median of 9.5 percent annually, which equates to a doubling in price every seven to eight years. And they found that pairs of brand-name drug competitors that treat similar conditions -- such as Humira and Enbrel, both for rheumatoid arthritis -- demonstrated highly correlated price increases.

They explained that a prescription drug's list price is typically set by the pharmaceutical company that makes the drug, reflecting the payment shared by the insurer and the patient who buys the product at a pharmacy. But drug companies increasingly offer rebates to organizations called pharmacy benefit managers, or PBMs, which negotiate with pharmacies and insurance companies to determine which drugs are offered as preferred "formulary" options to insurance plan members.

Those rebates are returned to the pharmacy at a later date, paid out by drug companies based on the total sales volume of their products, and cannot be linked directly to any individual purchase. This makes prices especially difficult to track.

Some drug companies have defended list price increases by reasoning that rebates have increased at a similar clip. However, the researchers found that is not the case, and concluded that increases in list prices and a greater reliance on rebates are making drugs more expensive overall.


Health and Human Services Secretary Alex Azar has called the rebate system the "dirty, little secret of drug pricing," but insurers claim that they use the rebates to lower the cost of premiums, which helps all beneficiaries, not just those buying prescription drugs.

HHS recently proposed changing the drug rebate system through safe harbor rules that would promote drug manufacturers to give rebates at the pharmacy counter, rather than passing them on to pharmacy benefit managers or health plans. Insurers have said this could increase the price of premiums by 25 percent.

A January study from the National Opinion Research Center at the University of Chicago found that hospitals are badly suffering under the weight of drug prices and drug spending.

The average total drug spending per hospital admission increased 18.5 percent between fiscal years 2015 and 2017, from $468.50 to $555.40, resulting in roughly $1.8 million in new spending for the average hospital.

Outpatient drug spending per adjusted admission spiked 28.7 percent and inpatient drug spending per admission went up 9.6 percent during the same period.

Twitter: @JELagasse

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