Michigan Association of Health Plans

Opinion: We need price transparency for medicines

As a U.S. Congressman, I hear from hundreds of constituents every month on a variety of important issues. One of the most frustrating and heartbreaking concerns for those of us who live in South Carolina is the rising cost of prescription drugs. A recent poll by the Kaiser Family Foundation indicated that nearly 1 in 4 Americans felt difficulty paying for their prescription drugs. Rarely a day goes by where I am not reminded of the hardship caused when a desperately needed medication is beyond what a family can afford.

In an effort to map out solutions to this problem, it is important to understand that in the broader conversation about healthcare, the fact that certain prescription drugs are too costly is not evidence of the need for a single-payer, socialized health care system.

We need to fix the system, not break it. In Washington, I see firsthand just how expensive and inefficient the federal government is in almost everything it tries to accomplish. The absolute last thing we need are government bureaucrats holding the purse strings for our prescription drugs or playing any role in what medications you and your doctor believe are in your best interest. This would be disastrous for all patients.

With that said, we must recognize that the federal government does, in fact, have a responsibility to ensure that drug manufacturers, insurance companies and pharmacies are all acting in our best interest.

I believe one of the many elements here that warrants congressional attention is transparency in drug pricing. Specifically, we deserve to know what a particular medication costs to develop and manufacture and be able to understand why our actual out-of pocket costs often differ significantly from that price.

Pharmacy Benefit Managers are firms that play a significant role in determining the cost of our prescriptions. PBMs negotiate drug prices between insurance agencies and drug manufacturers.

Depending on your plan, your insurance company typically pays a portion of that negotiated price, and the balance represents your co-pay (i.e. the amount you pay out of pocket for that prescription).

Every deal is different, depending on the PBM’s size and negotiation power. This is why, for example, cholesterol medication at one pharmacy may cost twice as much as the same drug at a different pharmacy.

As consumers, we have no insight into these deals. We have no idea what a given prescription medication actually costs to develop and produce. We cannot see what discounts PBMs negotiated with any manufacturer for any medication, and we have no insight into how much of our prescription costs is actually covered by insurance.

What we do know is that drug manufacturers must inflate their list price far above fair-market value in order to recover financially from the steep discounts negotiated by PBMs. Yet for those of us who are paying out of pocket for our prescriptions or who need drugs not covered by our insurance, we do not see how much above fair-market value we are being charged for those medications.

As patients, we are repeatedly told of the importance of asking questions, getting second opinions and shopping around for the best options. Yet how can we compare similar drugs without knowing the fair-market value of each? How can we determine if our insurance plans are providing appropriate prescription coverage without knowing what percentage of the medication they actually cover?

What incentives do drug companies have to remain competitive if their customers are blind to the real cost of their products?

Now let me be clear: Pharmaceutical companies spend hundreds of millions of dollars in R&D, testing and the FDA approval process, with no guarantee that the drugs they develop will ever make it to market. It is a huge financial risk.

Without the ability to recover those investments and make a profit, drug manufacturers would perish, along with any hope for new and improved medications. But even with that risk, the public deserves to understand how these prices are set and why the cost for any given medication can vary for different groups of people.

For patients, free-market principles will help lower prescription costs, but that starts with pricing transparency. Sunlight is the best disinfectant, and we need to shine some light on how prices are set. Transparency in pricing is just one practical step Congress can take to help get our drug prices under control.

Ralph Norman represents the state’s 5th Congressional District.

This op-ed was originally published by The Sumter Item