Can Health Insurance Companies Drive Down Prescription Drug Prices?

If you’ve ever had a prescription filled in the United States, you’re aware that American drug prices can be ridiculously high. But some drugs are pricier than others — and health insurance providers are fighting back.

The recently released prescription drug Solvadi (sofosbuvir) is a case in point. Solvadi is the only cure for hepatitis C, a liver infection that can lead to cirrhosis, liver cancer, liver failure and ultimately death. You’d think this drug would be a godsend for the many patients struggling with hepatitis C — until you got a look at the price.

Solvadi costs a staggering $1,000 a pill, or $84,000 for a full, 12-week course of treatment. Other specialty drugs, like those used to treat rheumatoid arthritis, cancer and multiple sclerosis can cost patients an average of $10,000 a month. Even drugs for more common conditions can be prohibitively expensive for most people, which is why many Americans turn to online pharmacies like Medicines Mexico to cut their prescription drug costs.

Health insurance providers say drug prices that high simply can’t be borne. Many insurers are now refusing to cover the costs of expensive drugs at all, at least in cases where the drug’s perceived benefit doesn’t justify its price, or there are other drugs available that do the same thing for less money. Patients will be forced to use similar drugs with lower price tags.

Prescription Drug Access Is a Problem for Many Americans

Prescription drug sales topped out at $326 billion in the 12 months prior to September 2013, and Americans’ prescription drug spending is expected to grow by three to five percent by the end of 2014. The high price of prescription drugs is to blame, and physicians around the nation are aware that, for most people, affording prescription drugs is difficult, especially when it comes to obtaining some of the most expensive treatments.

Jerry Avorn, a Harvard Medical School professor and chief of the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital, told CNBC, “Access really is a problem for a lot of patients in relation to these very costly medicines. We sometimes think, ‘Well, people have insurance, and under Obamacare there’s a lot more coverage,’ but what that doesn’t take into account is that very often there is a very big co-payment that the patient has to come up with that is often many, many hundreds or thousands of dollars.”

In 2012, Memorial Sloan-Kettering Cancer Center chose to stop prescribing the costly cancer medication Zaltrap (ziv-aflibercept) on the grounds that the drug didn’t provide any additional benefit over older drugs, despite its substantially higher cost. In response, the drug’s French manufacturer, Sanofi, cut the price of Zaltrap in half.

Insurers Forcing Drug Price Negotiations

While the U.S. Centers for Medicare and Medicaid services are prohibited by law from attempting to negotiate lower drug prices, health insurance providers are not. With rising health care prices affecting everyone, insurance providers are now giving pharmaceutical manufacturers a choice. Either drug manufacturers can slash the prices of their most expensive drugs, or insurers will remove those drugs from their formularies. A drug not listed in an insurance provider’s formulary won’t be covered under any plans — patients who want it will have to pay full list price out of their pockets.

Of course, health insurance providers aren’t going to dump drugs just because they’re expensive. If there’s no equivalent drug available yet — such as in the case of Solvadi — insurers will likely still cover it regardless of cost. But patients are already being asked to switch to less expensive equivalents of the medications they need — CVS Caremark dumped around 30 expensive drugs from its formulary in 2012 and 70 more this year; next year’s formulary will exclude 200 drugs. Express Scripts dumped 48 drugs and medical products this year. A new Catamaran formulary is 54 drugs lighter this year. Some of the drugs dumped include popular prescriptions like Advair (fluticasone/salmeterol) and Victoza (liraglutide).

So far, American drug manufacturers haven’t responded by lowering the prices they charge insurance companies. Nor will the strategy affect list prices, the prices paid by patients who must buy their drugs out of pocket, without help from an insurance provider. List prices will remain the same. Instead, insurers hope that by dumping costly drugs or forcing manufacturers to bargain, they can keep premium costs low.

Drug prices are astronomical, especially for some specialty drugs used to treat cancer, hepatitis C, rheumatoid arthritis and multiple sclerosis. Insurance providers, in a bid to keep premiums manageable, are dumping expensive drugs by the dozens. Unless drug manufacturers decide to start bargaining with insurers, patients will find their prescription drug options dwindling by the year.