The absence in the U.S. of some of these steps (no comparative evaluation or national price negotiation) has dire consequences, which I warned about in a book published last year that was co-authored with Pascal Orliac, our co-founder, entitled "Solving the U.S. Drug Conundrum." Chief among them:
- At the manufacturer level, U.S. prices are 4.5 to 4.8 times higher than those in France, the U.K. or comparable countries. This stark disparity, especially considering that Americans fund a significant proportion of global research efforts through the 27 National Institutes of Health, is an indictment of the current system.
- The U.S. per capita drug consumption volume, based on a standard measure used to represent the average daily maintenance dose of a drug, is 30% to 35% lower than the European average, as the IQVIA Institute reports show.
It's no secret that the U.S. has the world's highest prescription drug prices — one of many reasons why it's sometimes referred to in jest as the U.S. health "scare" system whose level of dysfunction can be downright frightening. However, benefit advisers can help their employer clients initiate various strategies to
Read more:
The grip of Big Pharma and PBMs
Prescription drugs now account for about 25% of a company's healthcare budget and drug prices continue to rise faster than other components of their healthcare expenditures. Their prices are forecasted to increase by 4.6% in 2025 and polls indicate that employers are becoming increasingly concerned about addressing this issue. All this is set against the backdrop of increasing legal peril for them as plan fiduciaries.
The two primary actors in this unfolding drama, of course, are drug manufacturers and pharmacy benefit managers (PBMs). At a U.S. national level, drug makers pocket more than 70% of the money, a ratio comparable to that in many other countries. This means that Big Pharma is mainly responsible for high drug prices. The industry is known for its high profits, with marketing expenditures exceeding R&D spending and one of the highest levels of profit shifting to fiscal havens, accompanied by extremely high compensation packages for its leadership.
Due to the industry's patenting tactics, medicines are protected for far longer periods than in other countries. To cite two examples, HUMIRA's first generic competitor entered the European market in 2018, whereas in the U.S. it was not until 2023. The record belongs to Enbrel: The first generic version entered the European market in 2016, compared to 2029 (if no new patent protections are issued) in the U.S.
Read more:
In the absence of nationwide regulations, PBMs and a host of specialized companies propose services related to drug procurement. At first sight, they appear effective at lowering drug prices:
A trio of the three largest PBMS controls 79% of the market, being vertically integrated both upstream with insurers and downstream with pharmacy chains, including specialty pharmacies as well as mail-order pharmacies.
This allows these behemoths to play all sorts of "games." Insurers are able to bypass the medical loss ratio, PBMs channel patients to their preferred specialty pharmacies and so on. One of the most detrimental aspects of PBM pricing policies is the high rebate policies they have introduced. The resulting sky-high list prices, the basis for patients' copays, make them unaffordable to many. Insulin, a centenary drug, best illustrates this, with thousands of deaths and tens of thousands of limb amputations during the past decade, sparking outrage and a reform, sadly limited to Medicare.
What can employers do in the face of such strong headwinds? Here are a few key steps:
- Contract directly with the PBM rather than through a coalition or any third party, which often accept money from PBMs.
- Never accept that a payer uses rebates to offset its administrative fees.
- Refuse to play the PBM game about "specialty generics." Generic drugs account for 90% of prescription fills and 60% of patients' out-of-pocket costs. They are introduced to the market through the abbreviated new drug application process and are generally less expensive than drugs introduced through a new drug application, which are protected by patents.
Depending on the number of labelers, the prices of generics are rapidly declining. To line their pockets even further, the three largest PBMs have created a drug category of their own they call "specialty generics" in order to sell you a generic drug at the price of a drug still protected by one or more patents.
Read more:
Drug makers provide patients with copay cards or offer patient assistance programs (PAPs) with an entire industry having emerged to manage them. PBMs countered with copay accumulators or copay maximizers, then consulting firms proposed "carving out" these costly drugs from formularies and helping patients access the PAPs.
A new breed of small PBMs has recently entered the market, often proposing different pricing systems such as a cost-plus model. However, some specialists argue that the actual system yields better results for clients likely due to the powerful negotiating leverage of traditional PBMs in extracting rebates.
U.S. healthcare is a complex, continually changing machinery that extracts too much value from every other party. No one would enter the jungle alone; hence, brokers and advisers who refuse to accept the status quo should join like-minded individuals in
Various U.S. states are increasingly investing in the field. The
We believe that private organizations will never be as efficient as public entities have been in other countries. A state-based solution, combining the adoption of a constitutional right to healthcare (as Oregon recently did) with an international reference pricing system adopted by a coalition of U.S. states, would have a far more significant impact than any private initiative.
