Biden administration announces “comprehensive” plan to fix high drug prices

Prescription drugs sit on a pharmacist’s counter. Photo by John Moore/Getty Images.

The U.S. Department of Health and Human Services last week issued its plan to address high drug prices as part of President Joe Biden’s push to take on anticompetitive practices across the economy.

But while it addressed in detail abusive practices by drugmakers, it was a lot more superficial about the practices of much-larger corporations that serve as drug middlemen and as some of the country’s largest insurers.

The report, “Comprehensive Plan for Addressing High Drug Prices,” was produced by HHS and forwarded on Thursday to the White House Competition Council pursuant to Biden’s July 9 executive order Promoting Competition in the American Economy.

The council held its first meeting on Friday.

The report notes the harm being done by rapidly inflating prices in the $370 billion drug marketplace, where medicine costs almost twice as much as it does in other countries in the Organization for Economic Cooperation and Development, a 38-member group of mostly developed economies.

“Americans pay too much for prescription drugs,” it says. “We pay the highest prices in the world, which leads to higher spending. Higher spending puts pressure on private and government payers to raise premiums or make benefits less generous. Lack of affordable access to prescription drugs and other health care services leads to worse health outcomes.”

Most of the solutions it offers deal with manufacturer abuses.

For example, it takes on a practice called “pay for delay,” in which a maker of a brand-name drug with exclusive access to the market pays generic competitors to delay bringing their products into the fray, thereby keeping up prices.

The report also proposes methods to promote production of generic and biosimilar drugs and it proposes to bring down costs through direct negotiations between huge programs such as Medicare and the companies that make them.

However, the report is much lighter on proposals about what to do about pharmacy benefit managers — middlemen who handle the transactions. That marketplace is dominated by three corporations that are among the country’s 15 largest and they’re also huge players in insurance and pharmacy.

The rebates the companies, known as PBMs, negotiate with manufacturers have been shown to increase the list prices of brand-name drugs, and the companies are also suspected of playing a big role in keeping prices of generics artificially high.

Critics have said that a lack of transparency in PBM rebate negotiations leads them to believe the companies are profiting handsomely at the expense of everyone else. Read more

Reports: Drug manufacturers and middlemen both responsible for rising consumer costs

Photo by John Moore/Getty Images.

The world of prescription drug pricing can be bewildering — intentionally so, some critics of the industry claim. 

Whether that’s true or not, several reports this year show that the supply chain’s alchemy of list prices, rebates and net prices hurts consumers. And a U.S. Senate report says drugmakers and middlemen share the blame.

The media often breathlessly report increases in list prices of more-expensive, brand-name drugs. “Big drugmakers just raised their prices on 500 prescription drugs,” read the headline of a January story by CBS News, for example.

But the story didn’t mention that government payers, insurance companies and the middlemen they hire usually pay far less than the list price. As Johnson & Johnson owner Janssen Pharmaceuticals reported, the net cost of its branded drugs actually fell by 14.4% since 2016.

That’s because big payers hire middlemen known as pharmacy benefit managers to handle drug transactions. Among their functions, they determine which drugs are covered and which of those will require low copayments from consumers or even no copayment at all. This, of course, gives consumers an incentive to ask doctors to prescribe those products.

Branded drugs are usually under patent, so it’s important for manufacturers to sell them at a premium while the drugs still have exclusivity so their makers can recoup research costs and turn a profit. In exchange for preferred insurance treatment, drugmakers offer pharmacy benefit managers steep rebates and other discounts off of their products.

And it’s not just Janssen that’s doing so, Adam Fein wrote last month in his influential publication, Drug Channels. Eli Lilly, GlaxoSmithKline, Novartis and Sanofi all saw drops in their net prices in 2020, Fein wrote. A sixth large manufacturer, Merck, saw an increase of less than 1%.

Without understanding how drug pricing works, it just seems logical to blame drug manufacturers for what seem like increasing costs. But that’s not the case, and Fein criticized those who should know better for not embracing the complexity of how prices are ultimately determined. Read more