BLOG: 2,000 reasons why your dry eye prescription costs $500
Key takeaways:
- The Inflation Reduction Act has a $2,000 annual cap on drug expenses for all Medicare beneficiaries.
- There are no incentives for drug companies or insurance companies to offer lower prices.
It’s a mad, mad, mad world out there, folks.
Legislators are mad about drug companies and pharmacy benefit managers (PBMs) driving up prices and costs of medications. Insurance companies are mad because the Inflation Reduction Act (IRA) mandates that they, the insurance companies, manage drug price “smoothing” for any patient who asks, for free. And patients are just plain mad at everything and everybody!
So, why are drug prices all of a sudden so high? Well, as I explained in my March Dry Eye Column, this is really a problem that is hitting the Medicare population. Drug companies are “buying down” the co-pay/co-insurance costs for patients younger than 65 years old who have commercial insurance; we can almost always get a decent patient cost (< $99) in almost any drug category. Sadly, it is against the law for drug companies to do this for Medicare Part D patients.
There is only one list price and one wholesale acquisition cost for a medicine; drug companies cannot have separate prices for commercial and Part D plans. This high price allows the drug company to pay larger “rebates” to the middlemen known as PBMs. To protect themselves from exposure to these prices, insurance companies do not mandate a co-pay (tied to a percentage of the negotiated price) but rather require patients to pay a co-insurance fee (arbitrarily tied to the insurance company’s cost or a percentage of the full price). Co-insurance is almost always higher than a co-pay.
The IRA now includes an annual $2,000 cap on drug expenses for all Medicare beneficiaries. At 30,000 feet, this is a reason to celebrate: No matter what medications you need, you never pay more than $2,000 a year. At 3 feet, the distance between your patient’s eyeballs and their checkbook, the news isn’t quite as joyful: Every patient now has a de facto medication deductible of $2,000.
This, my friends, is why your patient is now being asked to pay $500 for their $79 eye drop. There is no incentive for a drug company to offer a lower price because the PBM wants its rebate. There is no incentive for insurance companies to offer better pricing because they are on the hook for everything over $2,000 a year. The punch line is that they can choose any co-insurance they wish because after all the rebates and other fees paid to them (and PBMs) by the drug companies, a percentage of that co-insurance payment from the patient apparently finds its way to the insurance company.
The IRA has created that rarest of entities in health care: a bottom line. All at once or over time (see: smoothing), your Medicare patient is going to pay $2,000 for their medications every year. All we can hope for is that our patients don’t get mad at us.
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