Drugmakers’ copay coupons are pushing up drug prices – not curbing them: Kelly O’Reilly

COLUMBUS, Ohio — High drug prices are a burden for millions of Ohioans, especially those who rely on expensive medications for their lives or their health.

While the system that produces skyrocketing drug costs can be maddeningly complex, one thing is in fact quite simple: drug prices are set by drug manufacturers.

In some cases, drug manufacturers purport to atone for their highest-priced drugs by offering copay coupons to consumers. The consumer is spared a copay of, say, $500 for a drug that costs $3,000. If those coupons are used to satisfy that patient’s deductible and out-of-pocket spending obligations under his insurance policy, the insurance company will thenceforth pay the entire cost of the drug.

The problem is that insurance companies are legally prohibited from operating at a loss. That means that as long as they’re stuck paying whatever arbitrary and astronomical price drugmakers opt to charge, they will be forced to charge higher premiums. And every consumer wants to pay more.

Copay coupons ultimately keep drug prices high — far higher than they need to be for manufacturers to make a profit. Sometimes there are lower-priced, equally effective equivalents to high-priced drugs. In a rational system, consumers would want their doctors to prescribe those instead of the overpriced ones. But when a copay coupon effectively hides the price, most consumers don’t question. Drugmakers remain free to charge whatever they want and everyone who buys insurance covers their profits through higher premiums.

So, while copay coupons are presented as increasing access to lifesaving medicines, they run the risk of driving health-care premiums so high that small employers no longer can afford even to offer insurance — reducing someone’s health-care access to zero.

The question Americans must ask to bring about change is: Why are drug prices this high? Drugmakers often point to the great investment required to research and develop new drugs. Without question, modern pharmaceuticals are a tremendous gift to humankind and we all can be grateful for the enterprise that brings them about. But high drug prices can’t be chalked up to the cost of R&D.

A study last October by AHIP — my organization’s national equivalent, formerly America’s Health Insurance Plans — found that, in 2020, seven of 10 big drug companies examined spent far more on sales and advertising than on R&D. The 10 collectively spent 37% more on marketing than on research. And that was at the height of the pandemic, when research was presumably more important than ever.

Amid all this dysfunction, there are bright signs of change. One of the most promising is a movement among some groups of hospitals to circumvent big drugmakers by making their own drugs and selling them for a modest profit. Civica, a consortium of large US hospitals, created Civica Rx, a mission-driven, nonprofit generic drug company, four years ago. It aims to lower the price and increase the supply of certain generic drugs — those that were especially overpriced or are often in short supply. The company acquires drugs through partnerships with generic drugmakers and by manufacturing its own; it is building a 140,000-square-foot pharmaceutical plant in Petersburg, Virginia.

The project was featured in The Washington Post recently with some truly exciting news: Civica Rx will make and sell a generic form of insulin for no more than $30 per vial and $55 for a package of five injector-pen cartridges. The prospect of an end to the pharmaceutical industry’s strange hold on this essential life-saving drug is truly heartening.

If the Civica Rx model takes off, a key question will be how the rest of the system will react. Once it is established that there is money to be made with $30 insulin, what will justify a price of $500?

Kelly O’Reilly is president and chief executive officer of the Ohio Association of Health Plans.

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