Sally Pipes: Bernie Sanders offers wrong solution to cut drug prices

Sen. Bernie Sanders, I-Vt., again defended his “Medicare-for all” plan Sunday, as he headed from Detroit to the nearby Canadian city of Windsor with a group of diabetics to dramatize the lower cost of insulin in Canada.

Sanders is bound to mention his Canadian trip when he debates nine other presidential contenders Tuesday night to make his frequently stated point that Americans pay too much for prescription drugs and that pharmaceutical companies' “greed” to blame.

Sanders is right about one thing. Americans pay too much at the pharmacy counter. But drug companies are hardly the culprits. If he really wanted to help patients, Sanders would attack the root of the problem – America's opaque and convoluted drug pricing system.

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Americans with Type 1 diabetes have seen their drug costs skyrocket in recent years. Between 2012 and 2016, annual spending on insulin for these patients grew from $2,864 to $5,705.

Diabetics aren't the only ones struggling to pay for their medicines. Nearly one-quarter of Americans find it difficult to afford their drugs, according to one recent poll. Three in 10 say costs have led them to deviate from their prescribed drug regimen.

 If he really wanted to help patients, Sanders would attack the root of the problem – America's opaque and convoluted drug pricing sys. 

Sanders isn't alone in blaming these problems on drug companies. More than seven in 10 Americans contend that drug costs are unreasonable. Some 80 percent believe drug company profits are a major reason why.

But this blame is misplaced. In reality, drug companies have relatively little say over how much patients pay at the pharmacy counter. That's up to insurers and the pharmacy benefit managers (PBMs) they hire to design and administer their drug plans.

PBMs determine which drugs a plan will cover. That gives them considerable leverage in negotiations with pharmaceutical companies, which offer discounts to entice PBMs to place their medicines on insurers' formularies. On average, these discounts reduce list prices up to 30 percent. Discounts for insulin are often around 70 percent.

These savings add up. In 2018 alone, pharmaceutical firms distributed more than $160 billion in rebates and discounts on brand-name drugs.

PBMs pocket some of the rebates themselves, and pass the rest to insurers, who use them to lower premiums across the board. That may save patients a few dollars a month — but it doesn't do much to reduce their out-of-pocket burden.

Since PBM rebates are shrouded in secrecy, insurers usually base patient cost-sharing responsibilities – like copays and coinsurance – on a drug's pre-discounted list price.

Say an insulin has a list price of $1,000. An insurer might secure that medicine for just $300, thanks to a 70 percent discount negotiated by a PBM. In theory, a patient with a 25 percent coinsurance should pay $75 out of pocket for that drug. Instead, the patient will typically be on the hook for $250 — 25 percent of the undiscounted list price.

This opaque system is why diabetes patients struggle to afford their necessary medications. But it doesn't have to be this way. If insurers and PBMs shared savings with patients, everyone would be better off.

By one estimate, making 100 percent of manufacturer discounts available at the point of sale would reduce out-of-pocket spending on diabetes drugs by $3.7 billion a year. That's around $800 per patient.

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Cutting out-of-pocket costs would save money for health plans as well. When medicines are affordable, patients have an easier time sticking to their drug regimen. This keeps patients healthy and helps avert expensive treatments and hospital visits. All told, insurers could save $435 million a year by passing pharmaceutical discounts to diabetes patients.

If Sanders were truly concerned about making drugs more affordable, he'd support reforms that put cash from PBMs and insurers in consumers' pockets. Of course, a Canadian caravan is a much better photo op.

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