Well, first of all, drug companies are altruistic, providing billions in support for community activities, basic research and yes, ensuring that patients have access to their medicines.
And yes, discounting or covering the cost of a product is a fairly standard way to find a price acceptable to consumers.
And I think Jeff’s point is that instead of using charity to make drugs affordable, why not just reduce the price to patients.
It’s a damn good question.
Consider the confusing and convoluted way government sets prices: The PAP's assistance on behalf of the PAP enrollee does not count towards a Part D beneficiary's true-out-of-pocket cost (TrOOP).. But when Pharmaceutical industry is paying 50% of a brand-name drug cost while you are in the Donut Hole this 50% of retail cost is counted toward your TrOOP or Donut Hole exit point.
Jeff notes that “PAP spending DOES IN FACT cover the deductible/copay in most commercial or ERISA plans, which ultimately allows for the large pricing increases evident in the life sciences sector to get to 3rd party payor coverage.”
But this cost sharing in commercial plans is more of the same. IMS reported that new prices net of rebates declined. About 70 percent of the price increases went to covering rebates. Why don’t rebates, in commercial or government plans, go to patients. Why instead of rebate reduced prices are PBMs and insurers hiking copays for new drugs based on a retail price? Instead of using the money for patient focused pricing, PBMs and insurers (as well as some employers) are redistributing rebate dollars that can be used for anything, including Anthem’s alleged use of rebate dollars to buy back it’s stock in 2009.
Those rebated new drugs are not always available for $70 a month. As a bunch of lawsuits have shown, PBMs and insurers pocket rebates and then place the rebated drug on the highest cost sharing tier.
Drug companies respond to this situation by covering patient out of pocket costs as a percentage of the price set by the PBMs, NOT the rebated price. Or the discounted price.
On the Medicare side of things, the situation is even more of a snafu. Discounts to offset part D out of pocket costs are on top of the rebates drug companies provide. The GAO noted: “The PBMs we interviewed also told us they observed that some manufacturers decreased the amount of rebates for the brand-name drugs they offered, which they believe occurred as a result of the Discount Program.
In comparison, most of the plan sponsors did not observe manufacturers decreasing rebate amounts and most manufacturers reported no effects on their rebate negotiations as a result of the Discount Program.”
Hence, PAP is a subsidy provided indirectly to patients by drug companies after rebates are paid and discounts are provided. Note that the rebates and discounts are based NOT on the rebated price. The whole arrangement is parasitic and idiotic. But it ain’t criminal.
Jeff writes: “If PAP spending were truly altruistic without regard to whether or not getting into the wallets of 3rd party payors was an issue, PAPs would cover those that cannot get medications but are eligible for government assistance…. it would cover those that cannot access a specific medication in a government program like Medicaid.”
But PAPs are mostly prohibited from providing assistance. That's to ensure states and HHS get the maximum amount of rebate dollars. I agree with Jeff that PAP should extend to Medicaid. There is no good reason why they shouldn’t (the rebate revenue government gets by limiting PAP support notwithstanding).
Often government programs don’t cover drugs that are needed. Under Obamacare, PBMs have pocketed rebates, charge patients a share of a retail price to discourage use. So PAPs fill that gap.
By comparison, Langreth and Elgin seem to think that society would be better off if patients were forced to abide by rebate driven practices of PBMs as enabled by Medicare part D regs and the ACA. More to the point, they want to criminalize charity unless is comports with the cost containment goal they believe should be the primary objective of government regulation.
What I think Jeff is ultimately saying, and to which I agree, is that 1) currently charitable support for drug coverage should be extended to really needy patients and 2) rational drug pricing would consist of replacing rebate dollars and discounts paid here and abroad with net prices and charitable support that directly support those who need new medicines but are denied them due to profit driven formulary games (including Express Scripts and CVS eliminating dozens of drugs from their formulary in exchange for bigger rebates from the one or two drug companies whose medicines remain covered).
Tevi Troy at the American Health Policy Institute has formed a Health Transformation Alliance including larger employers who are tired to the rebate shell game. That group is focusing on policy changes to improve access to medicines in order to reduce long term costs and improve quality of life.
Langreth and Elgin ignore the dark underside of rebate driven treatment decisions. Instead they seek to criminalize a charitable activity that provides people who need a medicine the support that PBMs and part D plan sponsors should have provided in the first place.