How drug prices work: a must-read

This remarkable article is what got me to understand for the first time how drug pricing works:

          courtesy - Business Insider


The consequence, for people with diabetes, is this:

Because of the extraordinary public dissatisfaction with drug prices, for the first time some drug makers are now starting to share their net prices rather than their list prices. But, as explained in the article and diagram above, a large part of the list price still goes into someone else’s pocket (the PBM and the insurer). Here is some discussion of new public disclosures on net prices:

[EDIT] Added link to insulin price curve.

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This is a must read article… and as PBMs demand larger (confidential) rebates for drugs X Y and Z, the manufacturers have to raise the cost across the board to meet those demands, and then with a higher list price, the PBMs demand higher rebates…

PBMs are in my mind the #1 culprit of the runaway drug costs in the USA. They serve no beneficial purpose other than serving their own greed. The entire web is so intertangled and secretive that most people don’t understand it, or only understand bits and pieces of the racket… which is definitely deliberate by design of the PBM rebate program…


I understood all the pieces of the puzzle - but I did not have the one big picture in my mind – this infographic is really outstanding.

Fascinating read.

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That’s a great infographic. Very clear.

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Clearly, it’s a big piece of the problem – the consumer never sees the rebates, btw – only the PBM and the insurer. But, even after rebates, we still end up paying a lot more than the rest of the world – check out this 2015 report:

Important to note in that article that those figures are based on “estimated discounts” given to insurers and PBMs… why are they estimated? Because they’re tightly guarded trade secrets as to how much they actually are. So we’ve rigged a system where manufacturers raise their list price in unison and then secretly negotiate larger and larger rebates with the PBMs… the consumer has been totally isolated from the competition, instead the only competition is to have a larger rebate to the PBMs… which of course drives the list price up indefinitely with no end in sight. I’m not a big government big regulation kind of guy but clearly some oversight is necessary here to allow the free market to actually function correctly.

I can’t believe I am reading this from @Sam :slight_smile:

I am not sure what the solution is – but I have a feeling that playing in the system could make a difference. I wonder how hard it would be to start a PBM.

PBMs should not be allowed to demand compliance with their formulary for one thing, and should only be paid a clear and transparent processing fee…

With those 2 simple steps alone that part of the problem is solved

I must preface this by saying that I don’t have answers, just questions. Let me be the devil’s advocate for a minute:

  • the PBM’s formulary is their drug inventory, essentially. How can you ask them to change their inventory?

  • How can we require a specific type of company to keep no trade secrets, when every other company in the world has some, in particular about pricing? No company publishes its costs in relation to its prices.

[EDIT] It seems to me that, possibly, it would be simpler to make rebates illegal in the same way as discounts are illegal if you don’t show them on the patient’s cost.

Maybe @Chris has something to say here – he knows the system better than us.

Just like every other pharmacy in the country they have every product available to them… they just dictate which ones they’re going to make available to you… which has no benefit to your health, just the ones for which they receive the largest rebate, which just drives the list price even further.

As to not allowing an industry to have trade secrets, well that’s a reasonable point if we consider it a reasonable and legal industry. I personally think the entire situation looks a lot like racketeering

It is illegal (as in jail time) for a doctor to get a rebate from a drug company, PBM, pharmacy, specialist he refers to, you name it.

Why would it be so difficult to remove rebates from the drug chain? The only reason it’s difficult is because of all the money the politicians get from the drug chain.

EDITED: not meant in a political way, but edited per instruction. My psyche is way too fragile to endure a ban :cheeky: :ban_hammer:


The forum rule is – no political discussions outside of the Politics subcat (which does not update Latest btw).

Edit please!

I think that would make total sense. It also would not run into any of the objections I listed earlier. I really like that.

Essentially, the rule would be:

Whatever price the insurer pays, including ALL discounts and rebates, would be what is represented in the patient’s bill.

We still would need to find a way to deal with PBMs.

This wouldn’t solve anything though because the patient is paying only a predefined copay already and has no incentive to care or do anything differently based on an itemized list of who else actually paid what… transparency in the rebate process is only a half measure that really doesn’t accomplish anything. The rebate process in prescription drugs needs to go away completely— it is both what’s driving up costs and causing PBMs to restrict patient access to lifesaving drugs just because their manufacturers didn’t offer them as fat of a refund as their competitor did… which also is disruptive to innovation in medicine because massive multi billion dollar pharma companies can effectively squeeze out any smaller companies that bring any innovation into the market because the big money pharma can afford to issue larger rebates than a smaller less established company…

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Not quite true though. More and more plans have hefty deductibles, and high out-of-pocket maxima. For instance, I am out $3,750 by the end of Feb this year – and we have decent coverage. Not great, but decent. We have about $7K out-of-pocket max, and I am sure we’ll hit that this year but not until later year. So I do look carefully at high expenses – for instance, we are already out $400 on strips so far, more than a whole year of OneDrop. I think more and more people are in this configuration.

You have a deductible for prescription meds? As in your insurance pays nothing for meds until you reach that point?

It’s more complicated than that, and it depends on the drugs. But, if you average it all, I pay a high proportion of the drugs until I have met the deductible, essentially.

Of course, with my son, the deductible is gone on March 15, probably. I am not complaining, btw – just explaining that what you describe is not quite reality for many people. And I think we have good coverage, btw – I feel for all of those who don’t have our coverage or cannot afford to pay the OOP max every year.

Obamacare I suspect?

My insurance is really awesome…

…rebates or payments from the manufacturer of a pharmaceutical to any entity other than the consumer is prohibited.

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