By Assemblywoman Melissa Hardy
Prescription drug costs have skyrocketed at an alarming rate, rising faster than other goods and services in the U.S. since 2014. The increase in prices has left consumers with higher health care costs forcing them to make difficult decisions regarding their health. It has specifically hurt some of our most vulnerable populations – including our older generations on fixed incomes. This is especially concerning in my district, Assembly District 22, given its large aging population.
According to AARP, seniors receive an average of 54.5 prescriptions every year, or 4.5 prescriptions per month. With the percentage of our senior population increasing at the fastest pace in U.S. history, we need to do everything we can now to lower costs before it’s too late.
In 2006, prescription drug coverage fell under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. Since then, Pharmacy Benefit Managers (PBMs) went from being claim processors to third-party administrators of prescription drug programs for various health plans. This includes commercial health plans, Medicare Part D plans, self-insured employer and union plans, the Federal Employees Health Benefits Program, state government employee plans, managed Medicaid plans, and others.
As third-party administrators, PBMs negotiate with drug companies and pass on the negotiated price to health plans. PBMs are then compensated based on the amount they can negotiate. The problems arise when drug companies raise their prices to offer higher discounts which in turn increases the discount a PBM can claim for a bigger payout. Similarly, drug companies offer the same rebates and discounts to hospitals, doctors, and other health care facilities who in turn push more expensive drugs crowding out less expensive ones.
Within these lucrative payment structures, PBMs have contractual arrangements with health plans, including commercial contracts with pharmacies. The terms of these contracts vary, but sometimes these contracts include provisions that prohibit a pharmacy or pharmacist from sharing certain information or options with a patient. These prohibitions are frequently referred to as “gag clauses.”
If you are confused, you are not alone. The drug supply chain is so complex and opaque that it’s almost impossible to follow. While drug companies and PBMs point the finger at one another, consumers are stuck paying exorbitant drug prices.
According to the Pharmaceutical Care Management Association, PBMs administer prescription drug plans for more than 266 million Americans who have health insurance. Between 2006 and 2014, drug prices rose by over 50% including 142% for drugs with no generic substitute. More recently, between 2016 and 2017, retail prices for brand names prescriptions used by older Americans rose by an average of 8.4%.
It’s easy to see why prescription drugs are such a lucrative business. Consumers purchased prescription drugs worth $235 billion in 2015 from local or mail-order pharmacies. Estimates indicate that overall U.S. spending on prescription drugs will be as high as $584 billon by 2020. This is a huge market and health insurers, as well as consumers, struggle with the cost of prescription drugs.
Federal lawmakers have acted to curb the cost of prescription drugs. However, more can be done at the state level. That is why I introduced Assembly Bill 141 to further reign in PBMs and increase a pharmacist’s ability to work as a part of the medical team to give patients access to the best information and options possible. Assembly Bill 141 clarifies that PBMs may not prohibit a pharmacist or pharmacy from providing information to a covered person concerning the price of a less expensive drug or penalize a pharmacist for selling a less expensive generic drug.
These changes are a step in the right direction and will give consumers some relief at the counter. There is still much more that we can do. I will be working with stakeholders during the interim to draft legislation that will give patients more control and create greater transparency in order to lower costs. We must act now, and we must act together as we tackle the cost of prescription drugs.