Professor Robin Feldman published an op-ed in the Washington Post in response to Health and Human Services Secretary Alex Azar’s comment that he couldn’t promise a coronavirus vaccine would be made available to Americans who couldn’t afford the medicine.
The op-ed, “President Trump’s coronavirus response highlights a flawed drug pricing system,” noted that while the administration’s response outraged Democrats, “Azar’s comments reflected less his priorities than our broader system, which dictates that, even in the face of a public health threat, the cost of drugs could well be prohibitive for many who need them because of runaway pricing.”
Feldman, Arthur J. Goldberg Distinguished Professor of Law and Director of the UC Law SF Center for Innovation (C4i), writes that prescription drug prices have soared. A critical mechanism for containing prescription drug prices is the formulary system. Feldman reveals the role the formulary system and health insurance plans play in rising drug prices in her recently published study, The Devil in the Tiers.
Health plan tiering should reflect the cost of a drug, as well as reward patients who choose generics over brands. However, the C4i study analyzing Medicare claims from 1 million patients over an eight-year period (2010 to 2017) shows widespread formulary manipulations:
- From 2010-2017, the percentage of generics on the most-preferred tier dropped from 73% to 28%.
- During the same period, the percentage of drugs placed on inappropriate tiers in relation to drugs with the same active ingredient increased from 47% to 74%.
- The average out-of-pocket payment tripled in Medicare plans from the most-preferred tier to the next, which hurts patients. Yet, the health plan pays roughly the same amount for generics on both tiers. Thus, by moving generic drugs onto pricier tiers, the health plan is pocketing more money for drugs that cost them the same amount.
- Considering nothing but patient out-of-pocket costs and payments from the federal the low-income-subsidy program, these formulary abuses wasted $13.25 billion dollars over the eight-year period, with the waste rising significantly across time.
Further, Feldman noted that the drug rebate system may be driving up prices.
She concludes in the op-ed:
“There is a simple, elegant solution that could help return formulary tiering to its intended path: requiring that health plans use list price as the basis for tier placement. Although perhaps counterintuitive, basing tiering on list price has the potential to realign incentives within the formulary system. Hidden rebate deals would become less appealing to drug companies if their drugs couldn’t secure a better position on the formulary in return. At the same time, drug companies with high prices would find their drugs deeply disadvantaged, making price increases less attractive in the first place and eliminating the need for rebates. In other words, basing tiering on list price would unwind a vicious cycle.
“We need a functioning generics market if we hope to constrain prescription drug markets, and formulary reform is a critical step in supporting it. If generic markets are not competitive and thriving, little ground can be gained. Although there is no silver bullet, basing tiering on list price is a streamlined approach for cutting through a wide swath of perverse incentives and manipulations. After all, at the end of the day, it is the price that matters.”
Feldman’s work focuses on the role of intellectual property law in technology and innovation, drug pricing and health care law, and artificial intelligence and data. Her most recent book is Drugs, Money, & Secret Handshakes: The Unstoppable Growth of Prescription Drug Prices (Cambridge 2019).