Despite Drug Industry Claims, Higher List Prices Do Mean Higher Out-of-Pocket Costs for Many Patients

A pharmacy technician filling out a prescription of Levoxyl at the Rosemont Pharmacy in Portland, Maine on January 18, 2006
A pharmacy technician filling out a prescription of Levoxyl at the Rosemont Pharmacy in Portland, Maine on January 18, 2006
Photo: Joe Raedle (Getty Images)

New research suggests that as the list price of brand name drugs rise, so do out-of-pocket medical costs for these drugs—at least for some patients. This is counter to a common industry claim that patients aren’t affected by list price increases. The study found a link between list prices rising and out-of-pocket increases among people with private insurance plans that mandated deductibles and coinsurance. These patients also didn’t seem to benefit from rebates passed down by drug makers to insurance companies that are supposedly meant to offset price increases.

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List prices are the initial surface cost attached to a drug. Like many parts of the U.S. healthcare system, especially relative to other wealthy countries, they’re been on a steady and sometimes dramatic rise in recent years. The poster child for these increases has been everyone’s favorite bad guy, Martin Shkreli, whose company Turing Pharmaceuticals raised the price of an antiparasitic and HIV drug called Daraprim from $13.50 to $750 a tablet in 2015 (the drug has since become generic as of last year).

Drugmakers have tried to rationalize these list price increases, which are often higher than needed for inflation, by claiming that patients largely aren’t being affected by them—thanks to the insurance most people have and the often-confidential rebates many will provide insurers or third-party pharmacy benefit managers. Critics have argued back that high list prices can still strain the resources of payers like Medicare in buying sorely needed brand name medications, such as hepatitis C drugs or preventative HIV prophylaxis. That can then affect the supply made available to patients, such as by tightening up the eligibility for these drugs.

Some but not all research has also suggested that rising list prices for drugs like insulin are increasing patients’ out-of-pocket costs, even with rebates around. But according to study author Benjamin Rome, a researcher in pharmaeconomics and pharmacoepidemiology at the Brigham and Women’s Hospital in Massachusetts, it’s not really clear whether rising list prices across the board are having more of a direct impact on patients.

In his team’s new research, published today in JAMA Network Open, they looked at list price trends for 79 brand name drugs from 2015 to 2017. They then cross-referenced that information with a database of 30 million (de-identified) patients with private insurance claims during the same time, looking specifically at patients’ out-of-pocket spending.

Overall, they didn’t find a link between rising list prices and higher out-of-pocket costs for patients who brought these drugs. But when they looked more closely at the 53% of patients who needed to pay deductibles and coinsurance for their prescription drugs, rather than only fixed co-pays, that was no longer the case. During those years, these patients’ median out-of-pocket costs rose by about 15% and were moderately associated with increasing list prices. And when accounting for rebates that might have driven down the net price of these drugs for these patients, the team found no evidence that they helped.

“Our findings suggest that many patients end up paying higher out-of-pocket costs when drug manufacturers raise list prices each year,” Rome told Gizmodo in an email. “Drug manufacturers have long argued that rising list prices for their drugs are not meaningful or important, because they are offset by confidential rebates. But we show that patients are not benefiting from these rebates.”

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And though it might go without saying, higher out-of-pocket costs can be medically dangerous for some patients.

“One in four patients reports not taking their medications as prescribed due to high cost,” Rome noted. “And multiple studies have documented that higher out-of-pocket costs lead to lower adherence. Prescription drugs don’t work if patients cannot afford to take them, so in some cases this leads to worse clinical outcomes.”

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Many experts have argued that drastic reforms will be needed to bring down the exorbitant prices of prescription drugs in the U.S.—prices that typically aren’t justified by the costs needed to develop and bring these drugs to market. But barring that, there are other, less sweeping policies, including some that were supported by the former Trump administration and possibly the current Biden administration, that could help alleviate the financial burden on patients.

These could include banning or penalizing list price increases above inflation; requiring that rebates are directly passed onto patients, not third parties; or even just getting rid of rebates altogether, in lieu of other more transparent cost-saving changes.

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“All of these policy solutions have limitations, and none of them target the underlying source of the problem—high prescription drug prices,” Rome said. “But even in the absence of more dramatic reforms, such as allowing the federal government to negotiate drug prices, these solutions could provide important financial protections for patients who need these drugs.”

Despite promises by both the former Trump and current Biden administrations, though, progress on enacting these sorts of reforms on the federal level has largely remained stagnant, while others are facing legal challenges by the pharmaceutical industry.

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Science writer at Gizmodo and pug aficionado elsewhere

DISCUSSION

northbx
burner'down

I am shocked that a confidential, undisclosed rebate, paid from a drug manufacturer to an insurance company, isn’t being passed on to the consumer. Surely this is what should happen in an unfettered capitalist system where there’s competition between insurers for customers: the company that provides the needed medications at the best price will get the most subscribers and will thus make the most profit.

Oh wait, no, I’m not shocked, because that’s not how any of this works, has ever worked, or will ever work. “Confidential rebate” is the white-shoe way to say “lawful kickback,” and there are other ways that rising list prices can constrain consumer choice in medication. If the price an insurer pays out on a drug rises, the insurer is going to look at whether or not to cover that drug, or to only cover it with a higher copay, and so on. If you’re a patient for whom that drug works well, any change — either to a lower-cost alternative or paying more out of pocket — could have negative repercussions.

Our health system is such a fetid pile of bullshit, it’s a miracle more of us don’t die young.