Analyst: Industry, government must address prescription cost drivers

An open pill bottle
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A national expert who specializes in analyzing what causes prescription drugs to increase said that both the public and private sectors must address pricing abuses within the drug supply chain.

Randy DeFrehn told the Advance last week that those abuses have impacted millions of Americans, including fixed-income retirees. He said that “absent prompt voluntary action by the industry, new models will be imposed by state and federal lawmakers and regulators to increase transparency and reduce costs to third-party payers and patients.”

Pharmacist Hank Wedemeyer fills prescriptions on December 1, 2009 in Aurora, Colorado. | John Moore/Getty Images

State Medicaid systems, including Michigan, have moved away from spread pricing, which is when health plans contract with pharmacy benefit managers (PBMs) to manage their prescription drug benefits. A PBM is a third-party administrator of prescription-drug programs for end payers, such as private insurers, and Medicare Part D plans. The PBM charges a payer more than it reimburses the pharmacy for a certain drug and retains the difference.

Now Medicaid systems pay a fixed dispensing fee plus administrative costs. The change is expected to result in significant savings, DeFrehn said.

DeFrehn has worked both nationally and internationally in health and pension benefits, labor and government relations consulting. For the last 20 years, he has advocated on public policy affecting health plans, participants and their sponsoring organizations.

Last October, state officials banned the practice of spread pricing in contracts the state has with health insurers. An April 2019 report commissioned by the Michigan Pharmacists Association estimated that PBMs overcharged Michigan Medicaid by at least $64 million.

A woman shops in the pharmacy area of a Wal-Mart store September 21, 2006 in Mount Prospect, Illinois. | Tim Boyle/Getty Images

DeFrehn said that more innovative approaches, including outcomes-based pricing introduced by drug manufacturers, could save costs. Additionally, a recent reverse auction conducted by the state of New Jersey, which is expected to yield an estimated three-year savings of $1.6 billion to the plan. It covers 750,000 active and retired state employees and their dependents without changing covered benefits, copayments or deductibles.

Last year, then-state Sen. Tonya Schuitmaker (R-Lawton) sponsored SB 287, which aimed to regulate and increase transparency of PBMs. It would have addressed the increase in prescription drug prices. Her Senate colleagues, however, did not take up the measure.

In Washington, U.S. Sen. Debbie Stabenow (D-Lansing), ranking member on the Finance Subcommittee on Health Care, introduced legislation earlier this year aimed at lowering the cost of prescription drugs.

U.S. Sen. Debbie Stabenow |Andrew Roth

“It’s absurd that our own government is prohibited from negotiating lower prescription drug prices for seniors under Medicare and that people across our own Michigan border in Canada pay so much less for their prescriptions,” Stabenow said. “My bills will help put an end to these outrageous practices and Big Pharma’s price gouging of American families.”

Stabenow’s Empowering Medicare Seniors to Negotiate Drug Prices Act would allow the U.S. Health and Human Services secretary to directly negotiate with pharmaceutical companies for price discounts of their drugs, which is banned under current law.

And the Michigan senior senator’s Affordable and Safe Prescription Drug Importation Act would authorize the Secretary of Health and Human Services to issue regulations permitting wholesalers, licensed U.S. pharmacies, and individuals to import safe medications from licensed Canadian sellers that are manufactured at facilities inspected by the Food and Drug Administration.

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Currently, Americans pay about 40% more on prescriptions per person than Canadians do, Stabenow’s office said. Already this year, prices on more than 1,000 medications have experienced an average price hike of six percent.  

DeFrehn, who has represented multi-employer plans, their participants and sponsoring organizations for more than 40 years, believes that all parties are responsible for cost. He points out that there are several actors in the drug system chain that includes wholesalers and pharmacy benefit managers.

“If you look at health care generally, prescription drug costs represent about 10% of cost, with the other 90% being everything else,” DeFrehn said. “The biggest cost driver is the hospital systems. I’m not saying that there isn’t an enormous amount of money going into drugs. Everybody’s making money in this process and it’s not just the manufacturers that are engaged in getting paid.”

Ken Coleman
Ken Coleman reports on Southeast Michigan, education, civil rights and voting rights. He is a former Michigan Chronicle senior editor and served as the American Black Journal segment host on Detroit Public Television. He has written and published four books on black life in Detroit, including Soul on Air: Blacks Who Helped to Define Radio in Detroit and Forever Young: A Coleman Reader. His work has been cited by the Detroit News, Detroit Free Press, History Channel and CNN. Additionally, he was an essayist for the award-winning book, Detroit 1967: Origins, Impacts, Legacies. Ken has served as a spokesperson for the Michigan Democratic Party, Detroit Public Schools, U.S. Sen. Gary Peters and U.S. Rep. Brenda Lawrence. Previously to joining the Advance, he worked for the Detroit Federation of Teachers as a communications specialist. He is a Historical Society of Michigan trustee and a Big Brothers Big Sisters of Metropolitan Detroit advisory board member.

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