Putting a stop to an unlikely cause of rising drug costs

According to research that was published this week in the journal Health Affairs, although prescription drug costs in the United States continue to rise, closing a loophole in a federal law may assist in reducing these costs.

The rising costs of prescription drugs, which have an impact on the balance sheets of both businesses and households, are a common target of efforts to reduce spending on health care in the United States. Indeed, through provisions in the Inflation Reduction Act, Congress recently took aim at drug prices after years of debate. However, despite the fact that there are numerous systemic factors that contribute to high drug prices, the research focuses on a surprising one: the fact that pharmaceutical companies in the United States provide subsidies for drug purchases.

In the United States, Medicare, the government insurance plan for the elderly and disabled, lets drug companies pay for patient assistance programs and encourages patients who can't pay for their medications. Lemoore Dany, a professor at Harvard Kennedy School and Harvard Business School, has conducted new research that suggests that funding programs like these for expensive drugs may be extremely profitable for many pharmaceutical companies. Medicare covers the remainder of the cost, with the companies covering the patients' portion.

"I'm really worried about what has happened to our drug prices and the incentives we've put in place to encourage high prices."

Dafny and her coauthors found that contributions to patient assistance programs were likely to be profitable even if only a small percentage of eligible patients used the manufacturer's drugs after analyzing the drug costs of more than 3 million Medicare Advantage patients in 2010 and 2017.

Conditions like these make prescription drugs more expensive for Americans than for people in other countries. The study, which was co-authored by Teresa Rooks of the University of Southern California and Christopher Ody of Northwestern University, is published in the September issue of Health Affairs.

Dafny, who is currently an expert for the US Department of Justice in legal challenges related to rugmakers' relationships with these programs, says, "I'm really worried about what's happened to our drug prices and the incentives we have embedded in our system to encourage high prices and utilization that doesn't consider prices, especially because so much of the tab is being picked up by insurers, including public insurers."

The issue with copays :

The exchange of anything of value that rewards or generates business reimbursable by federal health care programs is prohibited by the federal Anti-Kickback Statute.

Under the guidance of the United States Department of Health and Human Services, manufacturers may donate to charitable organizations that cover these costs and can earmark their donations for specific disease categories, despite the fact that the law prohibits rugmakers from directly covering Medicare patients' copays and other out-of-pocket costs. After Medicare enrollees gained coverage for prescription drugs in 2006, the amount contributed to these organizations skyrocketed, reaching $1.85 billion in 2018, according to the paper. The pharmaceutical industry provided the majority of that funding.

“This is a loophole that, contrary to the spirit of the Anti-Kickback Statute, enables manufacturers to subsidize the purchase of their own drugs. According to Dafny, the Bruce V. Rainer Professor of Business Administration, "that statute protects both seniors and the federal government from fraud and abuse, which is prevalent in health care." Because it encourages the use of expensive drugs over cheaper ones, this assistance can raise costs.

Privately insured patients can receive direct assistance from drug manufacturers, and they do. For instance, numerous drug manufacturers issue "copay coupons" that cover drug cost-sharing. Dany says that means that insurers can't use different tiers of copays to get rugmakers to accept lower prices in exchange for favorable tiering and encourage patients to use cheaper alternatives like generic versions of brand-name drugs.

Following donations from rugmakers :

Manufacturers pay for the cost-sharing of all drugs for a given condition when they donate to these charities. Dafny and her coauthors estimated, using Medicare data from 2010 and 2017, the proportion of sales that assistance would need to induce for the leading 1-2 manufacturers in each condition covered by a charity. This is referred to as the "breakeven inducement percentage," and they note that "inducement" refers to use that would not occur without assistance, even if it is medically necessary.

In 2010, the median breakeven point for the ten conditions with the highest drug spending per patient was 14%. According to the paper, it had decreased to 3% by 2017, indicating that "if charitable assistance induced just 3% of spending on the top manufacturer's drugs, the median manufacturer would have found it profitable to finance all assistance for the relevant condition" in 2017.

The scope of patient assistance charities is expanding, according to the authors:

From 87 in 2010, the number of conditions treated by these organizations for patients increased to 154 in 2017. The number of Medicare enrollees who might be eligible for assistance increased from 29% to 41% during that time. In 2017, the average condition was linked to spending $23,084 on drugs that were eligible for assistance, nearly tripling from $12,297 in 2010. Patients paid $685 in 2017, compared to $835 in 2010, for the treatment.

Inspiring change :

According to Dafny, the publication of his study comes shortly after the Inflation Reduction Act was enacted. According to Dafny, the Inflation Reduction Act aims to limit the price growth of existing medications, limit seniors' out-of-pocket drug spending, and eventually enable drug price negotiations. According to Dafny, despite the fact that "it's a little too early to forecast the impact of these measures on the role of patient assistance charities," she anticipates that the reduction in out-of-pocket spending will lessen the influence of assistance on drug sales. She explains that if patients are required to pay less, they may be more likely to purchase a drug that is more expensive even without assistance.

According to Dafny and her colleagues, the government ought to withdraw or substantially alter its guidance regarding patient assistance programs. They conclude that drugmakers' current guidance or enforcement of it encourages them to charge more for their products and makes it possible for them to receive kickbacks from donors' donations.

According to the paper, "Patient assistance programs probably harm a variety of stakeholders, including the patients these charities are ostensibly designed to help,"