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December 8, 2016

EpiPen and the Prescription Crisis

Summary:

The question is, whom to vilify for the pricing crisis: the manufacturer of the drugs or the American distribution channel?

Photo Courtesy of Greg Friese

The American prescription crisis is no longer coming. It’s here. And we need to focus on how to address it.

According to a study published in the Journal of the American Medical Association in August, for each person in the U.S., $858 is spent annually on prescription drugs, compared with an average of $400 per person across 19 other industrialized nations. Prescription medications now compose an estimated 17% of overall healthcare expenses.

How did we get here and who is to blame: the manufacturer of the drugs or the American drug distribution channel? Both parties are pointing their fingers at one another, with the flames being fanned by the media and government. Who should the consumer believe?

Unless you are living in a cave, you have heard or read about the EpiPen pricing scandal. The manufacturers’ CEO, Heather Bresch, claims that more than half of the new $608 list price is absorbed by the distribution channel. She says the huge price increases are not her company’s fault and attempts to justify the increased price. Is she right, or is she trying to pin the blame elsewhere for her pricing decisions?

See also: EpiPen Pricing: It’s the System, Stupid  

Drug manufacturers, in general, complain that their net incomes continue to remain flat or even decline. They show their financials as evidence and complain about the ratio of the list price of their drugs vs. the realized price, a figure known as “gross-to-net.” When rebates paid by the manufacturer outpace the price increases by the same manufacturer, it is easy to understand why the figure remains flat or even declines.

The pharmacy benefits manager (PBM) serves as the largest component of the manufacturers’ distribution channel, charging a margin/fee as well as collecting a rebate for their services. Somehow, they have redefined the laws of nature by figuring out how to consistently convince their clients that they are saving money, while showing Wall Street steady revenue growth.

The crisis is here, and as an employer you should be up at night wondering how this crisis of prescription costs affects you. The numbers don’t add up, and you are paying for the deficit.

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About the Author

Scott Martin is the founder, CEO and chairman of Remedy Analytics, a healthcare data analytics technology company that partners with employers to protect their prescription benefit interests. Martin is a three-time entrepreneur dedicated to making healthcare easily comprehensible and affordable for patients and providers.

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