Stephanie Garman picked up some prescription meds from CVS the other day. Normally she doesn’t give such things a second thought. This time she took a closer look at her receipt.
The retail price for her drug: $355.99.
The amount due: $3.47.
In other words, Ventura resident Garman was being charged 1% of the drug’s market price. She’s not complaining. But she wonders how there can be such a huge gap between what a drug ostensibly costs and what she’s actually paying.
“Someone is obviously benefiting from this, but I don’t know who,” Garman told me.
I hear frequently from people who are baffled by their financial interactions with the healthcare system — drug prices, treatment costs, hospital bills.
How can the list price be so astoundingly huge? Are insurers really paying this amount? Why aren’t patients told how much things really cost?
Experts say there’s nothing surprising about a patient’s drug copay being a fraction of the list price.
“The purpose of insurance is to protect patients from the full cost of medical care at the point they need it,” said Patricia M. Danzon, a professor of healthcare management at the University of Pennsylvania’s Wharton School. “An insured patient never faces full price.”
But Amy Davidoff, a senior research scientist at the Yale School of Public Health, noted that “the story underneath is more complicated,” often reflecting “a black-box negotiation process” between drugmakers, insurers and the middlemen who haggle behind closed doors over how much money changes hands.
In answer to Garman’s question, basically everyone benefits from these crazy drug prices — except patients.
What’s typically happening is that drug companies set the list price of drugs at insanely high levels solely to ensure the highest possible payment by insurers once all the haggling is complete.
That haggling on behalf of insurers is almost always done by intermediaries known as pharmacy benefit managers, or PBMs, which receive rebates and fees for every prescription filled and thus have an incentive to keep list prices stratospheric. They, too, want the conversation to begin at an inflated level to maintain higher fees.
Then there are markups along the supply chain by wholesalers and retailers, which want as big a piece of the action as they can swing.
Much of this is conjecture, though, because drug companies, insurers, PBMs and pharmacies do everything possible to shroud their transactions in secrecy. They claim this is for competitive reasons, and in part that’s true. But the bottom line is they don’t want anyone seeing how much cash is actually on the table.
According to the latest statistics on drug spending from the Organization for Economic Cooperation and Development (based on 2014 numbers), Americans pay way more for prescription meds than people in all other developed countries.
The average American pays nearly $1,100 annually, compared with $742 in Germany, $619 in Australia, $509 in Sweden and $478 in Britain.
And keep in mind: These figures reflect insured payments. For the more than 40 million American adults who lack health insurance, bloated drug prices can be catastrophic.
The drug industry says discount programs exist for such people, but that just underlines the insanity of the system — that we need special programs for people who have to pay list prices for a product.
President Trump has made sky-high drug prices one of his pet issues. He’s brought it up repeatedly since the campaign and has vowed to hold the drug industry accountable for “getting away with murder.”
Most of Trump’s proposals so far have been half-baked — declarations of intent to study things further. And they don’t include allowing Medicare to negotiate prices with drug manufacturers, which all experts agree would be the single most effective move.
But Trump has put one good idea on the table: Requiring that drug ads include prices.
The notion here is that this would not only help patients better understand the market but also shame drug companies into changing their ways.
The U.S. healthcare system deliberately misleads patients about costs, and any move toward genuine transparency is a move in the right direction.
Moreover, it’s what patients say they want. A recent survey by the Kaiser Family Foundation found that three-quarters of Americans favor specifying prices in drug ads. That includes 83% of Democrats and 72% of Republicans.
Don’t hold your breath, however. Drug companies almost certainly would challenge any such requirement on 1st Amendment grounds.
Then there’s the question of what price might appear in ads. The list price? The retail price? The average insured cost?
“It probably would be the list price, but that doesn’t mean much,” said Courtney Yarbrough, an assistant professor of health policy and management at Emory University. “List prices for drugs are imaginary and don’t have much connection to what people actually pay.”
I asked CVS about Garman paying only 1% of a drug’s retail price. Erin Pensa, a company spokeswoman, said retail prices “are based in large part on the manufacturers’ list prices.”
“Due to varying business models and operational costs, there may be price differences for some medications between a retail pharmacy such as CVS Pharmacy and other types of retail businesses that operate pharmacies,” she said.
“Generally speaking, our retail prices for prescriptions are in line with or less expensive than those of our major retail pharmacy competitors.”
Which is to say, everyone else gets away with these prices, so we do too.
The Pharmaceutical Research and Manufacturers of America, an industry group, opposes any move to include prices in drug ads.
Holly Campbell, a spokeswoman, said including prices in ads “would not benefit patients as they are often not the prices insurers pay and are generally not a good indicator of what patients will pay at the pharmacy counter.”
Which is to say, don’t worry your pretty heads about all this.
Clearly, if the retail price of a drug is about 10,000% higher than the patient’s out-of-pocket cost, something is deeply screwy. The drug industry can rationalize all it wants. This is a system based first and foremost on deception.
Garman wants to know who benefits.
Short answer: Them.