How insurers cost (not save) you money on drug prices

Insurers frequently require patients to pay a significant share of the cost of prescription drugs.
Insurers frequently require patients to pay a significant share of the cost of prescription drugs. AP

Nearly 10,000 North Carolinians are living with lung cancer. Half will die from the disease. Sadly, some will perish not because their medications prove ineffective, but because they can't afford those treatments in the first place.

Insurers frequently require patients to pay a significant share of each prescription's total cost. When insurers charge between $100 and $500, 32 percent of cancer patients don't fill their prescriptions. When out-of-pocket costs exceed $2,000, half of patients go without their prescribed medications, according to a recent University of Pennsylvania study.

Insurers and pharmacy benefit managers set these high out-of-pocket costs in the benefit design of the insurance products they offer. These companies negotiate enormous discounts from pharmaceutical manufacturers -- the discounts have increased significantly each year, to the tune of billions of dollars, but these discounts are rarely passed on to patients.

Let's dive into how that supply chain works.

Insurers use Pharmacy Benefit Managers (or PBMs) to negotiate the price of medicines with pharmaceutical manufacturers. The three largest PBMs negotiate the drug prices on behalf of health plans that cover 180 million Americans. In order to be included on an insurer's formulary, drug manufacturers provide substantial rebates and discounts off the list of the medicine.

PBMs pass some of these rebates to insurers. And they keep some for themselves. But patients rarely see these discounts at the pharmacy counter.

Because PBMs don't share these discounts with patients at the pharmacy counter, patients often pay far more for medicines than they should. Consider a cutting-edge oral cancer drug that has a sticker price of $10,000 per month. A patient's insurance plan might require her to pay 20 percent of that cost, or $2,000, until she hits her deductible.

Would the PBM and insurer pay the other $8,000?

The PBM would negotiate a big discount, on average 30 percent of the sticker price. The patient, of course, has no idea a rebate has been granted. She'd likely be grateful to her insurer and its PBM for picking up "80 percent" of the tab. In reality, the insurer and PBM may pay as little as $5,000, with the patient paying $2,000 of the actual $7,000 post-rebate cost.

If the patient's cost were based off the true, post-rebate price, she'd save $600 at the pharmacy counter.

Manufacturer discounts and rebates are supposed to make prescription drugs more affordable, and thus more accessible, for patients. That's not happening.

Regulators in Washington have now noticed that PBMs aren't passing through rebates meant for patients - especially the 42 million people in the Medicare Part D prescription drug program. Regulators are exploring ways to encourage PBMs and health insurers to share more of the rebates that they receive. Such policies could help simplify the drug supply chain and drive down out-of-pocket costs for patients.

Requiring PBMs and health insurers to share rebates with patients at the pharmacy counter is the best way to ensure that North Carolinians, from the Appalachians to the Outer Banks, have access to affordable medications.

Sam Taylor is the President and CEO of NC Biosciences Organization.