U.S. Prescription Drug Pricing Doesn’t Favor The Patient: Case Of Sub-Optimal Market For Cancer Pharmaceuticals

Healthcare U. S. Prescription Drug Pricing Doesn’t Favor The Patient: Case Of Sub-Optimal Market For Cancer Pharmaceuticals Joshua Cohen Contributor Opinions expressed by Forbes Contributors are their own.

I write about prescription drug value, market access, healthcare systems, and ethics of distribution of healthcare resources New! Follow this author to improve your content experience. Got it! Aug 3, 2022, 05:23pm EDT | Share to Facebook Share to Twitter Share to Linkedin The high cost of cancer drugs impacts patients. Experts speak of financial toxicity, which in part .

. . [+] is a reflection of a non-competitive prescription drug market.

getty The high costs of cancer drugs impact patients negatively. In fact, the out-of-pocket cost burden can be “ financially toxic ” to patients, causing personal bankruptcy or simply take a substantial bite out of people’s discretionary income. Should the Inflation Reduction Act pass later this month, the imposition of a $2,000 cap on Medicare beneficiary out-of-pocket spending on outpatient drugs would address the issue of financial toxicity to some degree, at least for one segment (Medicare) of the market.

Currently, 1. 5 million medicare beneficiaries pay more than $2,000 out-of-pocket for prescription drugs, while 1. 3 million spend more than $7,000.

Many of these Medicare beneficiaries are cancer patients. High patient out-of-pocket costs aren’t just a reflection of a poorly designed Medicare prescription drug benefit. More generally, they also reflect a market for cancer drugs which doesn’t function optimally.

Broadly speaking, competitive markets have numerous sellers and buyers, all of whom have all relevant information to make rational decisions about the products being bought and sold. There’s market (information) transparency and firms can freely enter or exit the market. Very few markets are perfectly competitive.

But, in a properly functioning capitalist economy most markets for most goods display a high degree of competitiveness which ultimately benefit the end-user. On the other hand, depending on the therapeutic or category of medicines in question, the prescription drug market exhibits multiple sub-optimal features, such as information asymmetry, entrance barriers, and worst of all, non-transparent pricing with perverse incentives for stakeholders to essentially overcharge patients. MORE FOR YOU CDC: Salmonella Outbreak Has Left 279 Ill, 26 Hospitalized In 29 States Canadians End Up In ICU After Attending ‘Covid Party’ White House Mandates Pfizer Vaccines for Millions of Citizens .

. . Before the FDA Clinical or Safety Reviews Have Been Made Public In a first article on this topic, we considered biosimilars.

Here, we’ll assess cancer drugs as a broad category. There is often a presumption that because the U. S.

market for pharmaceuticals is comparatively free in terms of price-setting by drug makers that it is by definition a more competitive market. But, in the oncology drug market, increased competition has not led to price decreases in many therapeutic classes. There are many reasons for this, including anti-competitive practices.

It’s not a good sign when “ irrespective [of] whether a [cancer drug] competitor entered the market or not, prices rose in the U. S. ” Take, for instance, checkpoint inhibitors, indicated for a variety of cancers, including non-small cell lung cancer.

There are plenty of competitors, but they’re all priced at more or less the same high level. And that price isn’t connected to value per se. That is not supposed to happen in an optimally functioning competitive market.

Moreover, the pricing of these drugs doesn’t correlate to comparative clinical effectiveness, changes in market size, or even the entrance of multiple competitors. By definition, oligopolistic pricing isn’t competitive. And when you essentially have the same prices of drugs in a crowded therapeutic class, such as non-small cell lung cancer, that amounts to oligopolistic pricing of products that are supposed to compete.

The story doesn’t end here, however. The cancer drug market has demand side issues as well. These are related to policies that, on the face of it, are well-intended, but have negative unintended consequences.

For example, there is a Medicare Part D rule which mandates that payers and pharmacy benefit managers (PBMs) cover “all or substantially all” drugs across six protected therapeutic categories, one of which is oncology. Certainly, preserving Medicare beneficiary access to all cancer drugs is a noble goal. But, it takes away leverage payers may have to negotiate lower prices, even in therapeutic classes with lots of competitors.

Further exacerbating demand-side problems is the harmful way in which the rebate system operates. In the outpatient space, PBMs share culpability in that they sometimes give preference to higher-priced drugs in order to extract greater rebates. And then there’s the problematic role that hospitals play.

The prices that private insurers agree to pay hospitals for cancer drugs are often at least double what the hospital paid to acquire the drugs, according to a new study in JAMA Internal Medicine . The JAMA study analyzed the prices of 25 top-selling cancer therapies. The median price markups by hospitals ranged 118% to 634% above the estimated acquisition cost.

In the end, these absurdly high margins are borne by patients through higher premiums and out-of-pocket costs . What’s perhaps worse, there’s the pernicious problem of qualifying hospitals who participate in the 340B* program marking up cancer medicines by up to four times for privately insured patients , and often charging “cash-paying consumers the same as commercial insurers. ” Profit margins extracted from the 340B program are estimated to be on average approximately 50% on oncology drugs, as hospitals purchase pharmaceuticals at significantly discounted 340B prices, and get reimbursed at much higher levels.

In sum, it’s no surprise people say the healthcare system’s pricing is “rigged. ” The entire drug supply chain is riddled with sub-optimal market features, none of which favor the patient. And so, the blame for high drug prices and out-of-pocket spending goes beyond drug manufacturers, to include PBMs, insurers, and hospitals.

Follow me on Twitter . * Section 340B of the Public Health Service Act requires drug makers participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations, including hospitals, that care for many uninsured and low-income patients. The program allows 340B hospitals to “stretch limited federal resources,” ostensibly to reduce the price of outpatient drugs for needy patients.

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