This post is a part of our Bioethics in the News series
By Jennifer Carter-Johnson, PhD, JD
A recent New York Times article described the problems that patients are having gaining access to a new class of cholesterol reducers, called PCSK9 inhibitors. This difficulty extends not just to the uninsured but also to patients with insurance. The drug costs are exorbitant, listing as more than $14,000 per year for a drug that may need to be taken indefinitely. Insurance companies are balking at paying so much for the new drug when cheaper cholesterol reducers are available. Patients for whom the old cholesterol reducers do not work are forced to jump through many time-consuming hoops – mountains of paperwork, proof that other drugs have failed, and appeals after initial denials of coverage – before drug coverage approval for the PCSK9 inhibitors.
It is easy to blame the drug companies in this situation. Why must they charge so much?!?! This question has become more common considering recent news stories about drug company price increases designed only to increase profits. But high drug costs are only one obstacle for patients to access drugs. Insurance coverage dictates cost of drugs to patients from nominal co-pays to out-of-pocket self-funding. Attempts to address one issue without addressing the entire web of interests is doomed to failure.
Drug Companies and Federal Regulations
Drugs cost money and time to develop and produce. All drugs must undergo scrutiny from the U.S. Food and Drug Administration, where drug developers must prove both the safety and efficacy of the potential drug before it is sold. The process takes on average 12 years between lead compound identification and final approval, and often costs close to a billion dollars absent streamlined approval processes for certain rare diseases. The billion-dollar cost estimate includes the cost of research for the failure of the many compounds that enter clinical trials but are deemed either unsafe or ineffective for the disease to be treated.
Thus, drug companies charge prices to recoup this huge research investment. Prices also pay for manufacturing and advertising as well as profit margins of close to 20% to fuel further investment. While there are mechanisms in place to incentivize generic drug manufacturers to enter the market and decrease prices through competition, branded drug companies have strategies to delay generic entry that have come under recent legal scrutiny.
Private Insurance and Federal/State Medical Programs
While drug costs are high due to the myriad factors described briefly above, patients are often insulated from some of those costs by insurance companies that cover the cost of drugs. Insurance comes in a variety of forms. Private insurance may be procured on the open market or through employer coverage. In the latter, the employer may cover some or all the costs of the insurance. Senior citizens rely on the Federally-sponsored Medicare program for medical coverage, though private supplements insurance policies are also the norm. Those too young for Medicare and too poor for private insurance (with or without an employer subsidy) are forced to rely on state Medicaid programs.
Unfortunately, not every insurance plan covers every drug. Insurance companies produce a formulary of covered drugs for each plan. The insurance plan negotiates a price, often significantly cheaper than the drug’s list price, that it will pay the drug manufacturer. More expensive drugs may require insurance pre-approval and multiple rounds of paperwork from the prescribing doctor.
Insurance companies have an incentive to reduce the usage of expensive drug alternatives. For private insurance companies, that incentive is profit. In fact, for-profit insurance companies know how to play this game quite well; many have profits in excess of 6 billion dollars. Medicaid and Medicare programs have limited budgets for all medical costs including drugs. While increased Medicaid funding for states offered through the Affordable Care Act was effective in decreasing uninsured rates, government funding is always in flux due to political pressures.
Doctors and Pharmacists
Doctors have great discretion in prescribing drugs. While doctors hold their patients’ health as the highest goal, knowledge of insurance (or its lack) may influence the doctor’s choice of drugs. Denial of a drug may well mean many, many more forms for a doctor who wants to make sure her patient has the best, most expensive drug. Doctors who do this for multiple patients could soon find themselves spending as much time on drug paperwork as medical care. Many doctors have taken to giving samples of drugs – left by drug companies as part of their advertising budgets – to patients who cannot afford the drug but need it.
Pharmacists exist at the epicenter of the patient’s dilemma. Patients often find out that insurance is not covering the drug when the pharmacist explains the situation. More troubling is the fact that drug prices are sometimes cheaper for a patient without insurance. For instance, a patient may have a twenty-dollar co-pay, but the drug may only cost ten dollars. For years, pharmacists have been subject to “gag clauses” in contracts between pharmacies and pharmacy benefit managers that prevent them from disclosing to the patient the cheaper alternative. Recent legislation signed this month has banned this practice.
Caught in this web of diverse and conflicting interests are the very people for whom drugs are created and vetted and prescribed – patients. Drug manufacturers must be able to recoup costs, but if no one can afford the drug how will they make sales? Additionally, drug pricing is a convoluted process that varies between insurance policies, pharmacies, and branded or generic formulations. Insurance coverage is often dictated by employer, age, or resources. Lack of coverage for a specific drug might mean the patient is faced with choosing a different drug or a different job. But asking about insurance formularies during a job interview would be quite difficult even if switching jobs in the midst of a medical crisis were possible. On the other hand, determining drug needs in advance is almost impossible. Finding a doctor with the time to work with a patient on an involved approval process is becoming more difficult given the increasing shortage of doctors in the United States.
Sitting in the center of this web of interests, patients have the most to gain and the most to lose from any overhaul of our drug system. It is impossible to fix all the problems by focusing only on the problems in one area. Unfortunately, patients are also a very small voice in the web that includes pharmaceutical companies, insurance companies, and medical professionals.
Jennifer Carter-Johnson, PhD, JD, is an Associate Professor of Law in the College of Law at Michigan State University. Dr. Carter-Johnson is a member of the Michigan State Bar and the Washington State Bar. She is registered to practice before the U.S. Patent and Trademark Office.
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More Bioethics in the News from Dr. Carter-Johnson: Humanity in the Age of Genetic Modification; Defining The Spectrum of “Normal”: What is a Disease?; Dawn of False Hope: Spread of “Right To Try” Laws across the U.S.; Designing Children: Patents and the Market are not Sufficient Regulation
- Gina Kolata, These Cholesterol-Reducers May Save Lives. So Why Aren’t Heart Patients Getting Them?, New York Times, October 2, 2018, available at https://nyti.ms/2OsIzcN.
- Andrew Pollack, Drug Goes From $13.50 a Tablet to $750, Overnight, New York Times, September 20, 2015, available at https://nyti.ms/1V3cJvC.
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- U.S. Food and Drug Administration, Laws, Regulations, Policies and Procedures for Drug Applications, available at https://www.fda.gov/drugs/developmentapprovalprocess/ucm090410.htm.
- Gail A. Van Norman, Drugs, Devices, and the FDA: Part 1: An Overview of Approval Processes for Drugs, 1 JACC: Basic to Translational Science 170, available at https://www.sciencedirect.com/science/article/pii/S2452302X1600036X.
- GAO Report, Profits, Research and Development Spending, and Merger and Acquisition Deals, available at https://www.gao.gov/products/GAO-18-40.
- Steven Adamson, Pharmaceutical Patent Wars, Reverse-Payment Settlements, and Their Anticompetitive Effects for Consumers, March 2, 2017, available at SSRN: https://ssrn.com/abstract=2926629.
- Healthcare market website, https://www.healthcare.gov/.
- Kimberly Lankford, Cost of Employer Health Coverage to Rise 5% in 2019, Kiplinger, August 17, 2018, https://www.kiplinger.com/article/insurance/T027-C001-S003-cost-of-employer-health-coverage-to-rise-in-2019.html.
- Medicare Website, https://www.medicare.gov/.
- Medicaid Website, https://www.medicaid.gov/.
- Bertha Coombs, As Obamacare twists in political winds, top insurers made $6 billion (not that there is anything wrong with that), CNBC, August 5, 2017, https://www.cnbc.com/2017/08/05/top-health-insurers-profit-surge-29-percent-to-6-billion-dollars.html.
- Larisa Antonisse, Rachel Garfield, Robin Rudowitz, and Samantha Artiga, The Effects of Medicaid Expansion under the ACA: Updated Findings from a Literature Review, available at https://www.kff.org/medicaid/issue-brief/the-effects-of-medicaid-expansion-under-the-aca-updated-findings-from-a-literature-review-march-2018/.
- Dartunorro Clark and Brenda Breslauer, Trump signs bills lifting pharmacist ‘gag clauses’ on drug prices, NBC News, https://www.nbcnews.com/politics/white-house/trump-signs-bills-lifting-pharmacist-gag-orders-drug-prices-n918721.
- American Association of Medical Colleges, New Research Shows Increasing Physician Shortages in Both Primary and Specialty Care, available at https://news.aamc.org/press-releases/article/workforce_report_shortage_04112018/.