He claims that drugs are the “only major category of health care services for which the producer is able to exercise relatively unrestrained pricing power.” He states that “by law, drug manufacturers can set the price that Medicare and Medicaid programs pay for new drugs, and they also benefit from significant negotiating advantages over private insurers, who are required to cover most new drugs and are unable to obtain significant price concessions from manufacturers, particularly for drugs that offer some clinical advantage or use alternative mechanisms of action compared with available treatment options. As a result, drug prices in the United States are generally 2 to 6 times higher than prices for the same drugs in other major industrialized nations.
These statements are incorrect and the assertion that free market pricing leads to high drug prices in the United States compared to “other major industrialized nations” is largely untrue.
Like every other health care good and service, drug prices are negotiated by private insurers and government health programs. Bach’s description of Medicare and Medicaid’s approach to drug prices also characterizes how wheelchair and hip replacement prices are established.
The average discount of off the Average Wholesale Price (a sticker price if you will) is anywhere from 10-50 percent on new medicines. Those discounted prices are about the same as the prices listed by health systems in Germany, UK, Canada, etc. The negotiated price for Solvadi in Germany is $46625. In France, it’s $51000.
In the United States? The government programs got a 65% discount. That’s $30000. Private health plans received a 40 percent discount. That’s $50000.
Bach usually fails to ask if these discounts ever make it to the patients that will be using the drugs. This, from someone who raised the same question about hospitals marking up drugs discounted for poor patients and re-selling them at a huge markup.
Some of the biggest health plans take the discounted drugs and then require patients to pay up to 50 percent of the cost of the drug. The drug price we see is therefore set by PBMs and insurers. And it is never the price they get the drug for in the first place.
Bach never questions the morality of such business practices. Indeed, he has successfully avoided answering an inconvenient question: If new drugs for cancer, heart failure, Hepatitis C etc. are en route to bankrupting America, why are they only 2 percent of the total insurers spend on health care each year. Bach’s false assumptions are designed to divert attention from this fact. And to justify a proposal that would give PBMs and insurers even MORE control over access to new medicines and their prices.
Bach and his co-author Steven Pearson have produced an interesting variation of value-based health insurance design. The would reduce out of pocket cost sharing for drugs that work or benefit patients, extend patent protection to those that demonstrate value in new patients with other illnesses and discourage use of medicines that don’t work.
That sounds sensible. However, Bach and Pearson would impose this value-based design on patients. And who would define value? The payors and PBMs who pocket rebates, re-sell discounted drugs to patients for a profit, force patients to pay a share of the marked up price for drugs they need and use cost sharing and fail first programs that make people sicker and ultimately discourage patients from enrolling in their plans in the first place
In fact, Bach and Pearson’s approach – a one size fits all value that gives PBMs and insurers to cut deals and design drug plans that maximize profits at the expense of the sickest patients -- would legitimize this questionable and counterproductive practices.
In the absence of dramatic reductions in the time, cost and uncertainty associated with developing new medicines for smaller groups of patients, prices will be what they are.
The best way to reduce the cost of health care is to insure that more people get the treatment best for them the first time. We have the ability to customize treatments to patients and replace large upfront costs with long term financing for many medicines. We are barely using precision medicine tools that would enable such a patient-driven approach. And what we learn from these new approaches can be used to improve medical care and make it more predictive, prospective, personalized and participatory. But Bach and Pearson ignore these tools.
Hence, the value based approach to drug pricing as proposed by Bach and Pearson institutionalizes the marginalization that sustains many (but not all) PBMs and insurers. Value-based drug pricing is nothing more than the health care policy way to pretend that separate and equal is not discrimination.