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When Drug Companies Raise Prices, Patients' Out-of-Pocket Costs Rise
  • Posted May 6, 2021

When Drug Companies Raise Prices, Patients' Out-of-Pocket Costs Rise

When prescription drug "list" prices go up, patients often take a hit in the wallet, a new study shows.

Researchers found that while some people are buffered against drug price hikes by their health insurance plan, many are not.

Those in plans that require co-insurance or a deductible for prescriptions typically watch their out-of-pocket expenses rise, according to the study.

Prescription list prices are akin to the sticker price on a car, explained lead researcher Dr. Benjamin Rome, of Brigham and Women's Hospital and Harvard Medical School, in Boston.

In the United States, drug companies can decide where a list price starts and how it increases over time. On average, research shows, those prices have increased by 9% each year over the past decade.

Drug manufacturers have argued that list prices "aren't important," Rome said.

That's because manufacturers often offer "rebates" to health insurance plans and pharmacy benefit managers that bring down a drug's net price.

However, Rome's team found those rebates are not shielding patients in many cases.

"We're shining a light on a problem that results from two forces," Rome said.

Rising list prices are one, he noted. The other is the trend for health insurance plans to add co-insurance and/or deductibles to patients' prescription drug coverage.

Co-insurance is the percentage of a health care cost that a patient must cover. So when a drug price goes up, so will the co-insurance.

A deductible, meanwhile, requires patients to foot their health care bills for a certain amount before their insurance coverage kicks in.

Traditionally, health plans required only flat co-payments for medications. So a decade ago, Rome said, many Americans may have been buffered against rising list prices.

The reality is different now, he noted.

In this study, more than half of patients had plans that required co-insurance and/or a deductible for prescription drugs.

The findings come from a national database including 30 million Americans with employer-sponsored health insurance between 2015 and 2017.

The researchers zeroed in on 79 brand-name drugs, finding that list prices typically increased by about 17% over the two-year period.

Overall, the study found, patients in plans that only required drug co-payments seemed to be "insulated" from those price increases.

That was not true of people in plans with co-insurance and deductibles. Their out-of-pocket expenses typically rose by 15%. (Half saw a greater increase, half a lesser one.) And those increases correlated with rising list prices.

In contrast, there was no correlation between patients' out-of-pocket expenses and the post-rebate net price of medications.

The findings were published online May 4 in JAMA Network Open.

Frederick Isasi is executive director of Families USA, a nonpartisan consumer health care advocacy group. He said, "These rebates happen behind the curtain, and the savings are not being passed on to consumers."

But to Isasi, who was not involved in the study, any solution has to go beyond passing rebates on to patients.

"We're seeing drug price increases that are far beyond inflation," Isasi said. And it's those unfettered and "irrational" hikes that are the root issue, he argued.

Not everyone sees it that way.

"The critical question left unanswered by this report is why insurance companies force patients to pay out-of-pocket costs tied to the full price of medicines, while these same insurance companies receive billions of dollars in manufacturer rebates," Sarah Sutton, a spokesperson for the trade group PhRMA, which represents the pharmaceutical industry, said in a statement.

"Nearly half of every dollar spent on medicines doesn't go to the innovative companies that discovered the medicines, but to middlemen, insurers, the government and other entities. This system is broken, and that's why we put forward solutions to lower what patients pay for prescription medicines, including changes that will ensure savings in the system are shared with patients at the pharmacy," Sutton added.

But Isasi said that while drug companies support such measures, they resist reforms that would cut into their profits.

"Any solution here has to address the fundamental issue of price," he said, noting that high drug prices also "get baked into" the monthly premiums people pay for insurance.

Rome agreed that "exorbitant" drug prices are the core issue. Some proposals by lawmakers include caps on list-price increases and penalties against companies that raise those prices above inflation, he noted.

Isasi said, "We know that a third of Americans have a hard time affording their medications." And that, he added, can lead to skipped doses, cutting pills in half and worsening health.

Rome described the system of price hikes and confidential rebates as "sort of a game."

"I don't want my patients, or any patients, to be caught in the middle," he said.

More information

The American Medical Association has more on prescription drug prices.

SOURCES: Benjamin Rome, MD, researcher, Program on Regulation, Therapeutics, and Law, Brigham and Women's Hospital, and instructor, medicine, Harvard Medical School, Boston; Frederick Isasi, JD, MPH, executive director, Families USA, Washington, D.C.; PhRMA, statement, May 2021; JAMA Network Open, May 4, 2021, online

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