Three Ways Drug Pricing Should Work in a Functioning Market, But Isn’t

The healthcare industry is hungry for innovation, and a properly functioning market should make that innovation possible. So why do we continue to see an unsustainable rise in drug costs? Why is medication affordability and accessibility still lagging so far behind? While there is no consensus on how to fix the broken drug pricing and rebate system, California has more opportunities than ever before to address prescription drug affordability by focusing on the pharmaceutical benefit manager (PBM) middlemen that can drive up costs.   

We can’t wait for others to find a solution to high drug prices. It’s clear what should happen in a functioning drug pricing market federally and in California, but it is not happening today:

#1: Competition should result in lower medication costs.

As brand drugs face generic competition, the price should come down. Consider Zytiga (abiraterone), a drug that has been off patent since 2018, but is still used frequently to treat prostate cancer. CivicaScript – a nonprofit generic drug manufacturer created to offer more affordable medications – sells abiraterone for about $160 a month. Yet, major PBMs are charging 20 to 40 times more for the generic pills. To date, only one of the three largest PBM-owned specialty pharmacies has purchased or dispensed CivicaScript’s abiraterone, and then only in small quantities. In addition to CivicaScript, there are many new transparency-focused entrants to the market, including Foundation Health, Prescryptive Health, and AffirmedRx. But this is not a functioning drug pricing market. 

#2: Biosimilars should gain market share since they are clinically equivalent at lower cost.

Biosimilars are clinically equivalent versions of expensive biologic medicines and on average cost 50% less than the reference brand when they come to the market.    

Before the groundbreaking Covid vaccines, Humira was the best-selling drug in American history with over $200 billion in revenue. Now, there are 14 biosimilar versions of Humira on the market. Despite this robust competition, biosimilar versions of Humira have struggled to gain market share in the United States. This is primarily because of our misaligned incentive system that’s resulted in PBMs becoming dependent on rebate guarantees and other fee payments from manufacturers that’s led to blocking or slow switching to lower cost biosimilar options.

Biosimilar competitors to Humira have captured only one percent of the annual market for the drug. A recent analysis found that maintaining patients on Humira comes at a cost of up to $9 billion more a year for patients and employers, compared to a full transition to biosimilars. It’s clear we are overpaying, and we should all be asking why.

#3: Competitors should respond to unfair pricing to gain a commercial advantage.

We know that unjustified mark-ups on specialty generic medications – up to 100 times the cost – are widespread among the major PBMs. The same companies that are supposed to keep costs down are marking them up. This includes the cancer drug Gleevec, which can sell for over $6,000 through a PBM but is available for $39 plus shipping from Cost Plus Drug Company. 

Where to go from here?

While defenders of the status quo actively work to block legislative reforms, there is more momentum than ever for changes in drug pricing across key healthcare stakeholders. The status quo is an opaque market with misaligned incentives, high prices, concentrated market power among a few large PBMs, and unfair barriers to competition. We need to do more to shine the light of transparency on what ails the U.S. drug pricing system and work to change it.

California led the nation by passing the first drug pricing transparency law in the country. Now more than half the states have similar laws. California can lead the way again by forcing transparency into PBM practices that drive up costs. At the same time, the state should begin building the infrastructure to independently establish the value of high-priced drugs. It could then create a maximum payment limit for these drugs—as many states are doing. These simple steps would go a long way to restoring balance in the broken drug pricing market.

*The author serves as a board of manager’s member of CivicaScript. Her employer partners with CivicaScript to provide affordable generic drugs.  

Photo: Devrimb, Getty Images

This post appears through the MedCity Influencers program. Anyone can publish their perspective on business and innovation in healthcare on MedCity News through MedCity Influencers. Click here to find out how.