Updated: Oct 18, 2020
Over the past several years there have been many horror stories about the USA healthcare system. Everything from the rising cost of premiums, to Wall Street increasing the price of life saving epipens, and many others. But one particular story is quickly becoming the “shot heard around the world,” in the war for affordable healthcare in America.
For those of you who are not familiar with the story, here is bit of background.
In 2017 a 27 year old diabetic by the named Alec Raeshawn Smith was having difficulty paying for insulin. Due to Obamacare, Alec was able to remain on his mother’s health insurance plan until age 26. But as soon as he turned 27, he was officially on his own for health insurance.
Alec worked at a small restaurant that did not offer any kind of healthcare plan. Alec was making roughly $35,000 a year annually working full time, and sometimes overtime hours. Alec’s yearly income put him above the income limit for Medicaid. He also looked into an Obamacare healthcare market. Unfortunately the cheapest plan was $450 per month with a $7,000 deductible.
As a result, Alec decided to start paying for insulin out of pocket, without health insurance. Alec’s prescription cost him over $1,000 per month. Coupled with bills such as rent, car payments, etc, Alec decided to start rationing out his insulin, in order to stretch the prescription out longer. This decision proved fatal for Alec. Approximately 30 days after leaving his mother’s healthcare plan, Alec Smith was declared dead.
Unfortunately, Alec’s story is quickly becoming more the norm rather than the expectation in the United States. Insulin prices continue to skyrocket, with no end in sight. Insulin prices have gotten so high, that Congress even hosted a Congressional Hearing on the matter. (Congress Summons Pharma Execs Over Drug Prices) And with all parties pointing fingers at each other one has to ask, why are insulin prices so high? In part 3 of our series, let’s take a dive into how insulin prices work in the USA.
Intro to Pharmacy Benefit’s Managers (PBMs)
The PBM is an intermediary between insurance companies and other members of the healthcare industry. These large scale organizations can negotiate large customer contracts and negotiate with both pharmacies and pharmaceutical companies to get the best rates. Will cut deals with specific insurance groups, while passing the cost of those cuts onto the average American consumer.
These types of deals are typically done via a rebates system. Many insurance plans and PBMs receive rebates that are based on the reimbursement price and the price along the distribution route. As a result, a specific insurance company will only have to pay $50 a bottle for insulin while an uninsured individual, like Alec Smith, would have to pay $1000.
Another common complaint about PBM’s is that there are only 5 PBM groups in the entire country. This lack of competition allows PBM groups to all work together to keep drug prices, including insulin, to be kept within a certain profit margin. And since each PBM is only loyal to select groups in the USA, it’s very difficult to break their grip.
BPM’s Blame the Drug Companies
BPM groups claim that the issue is not with them, but with the drug companies themselves. They claim that drug companies engage anti-competitive practices such as delaying new drug patents, lobbying for longer trial periods and even blacklisted certain cheaper generic drugs. BPMs claim they are forced to negotiate unfair deals not because they want to, but because they don’t have any other choice.
To combat this, several BPM’s have pushed for legislation to require pharmaceutical manufacturers to report the amount they are charging when a bottle of insulin (and other drugs) leaves their facility. These pieces of legislation are commonly known as pharmaceutical transparency bills. It is a starting point to begin to understand why insulin has such an expensive price tag at the pharmacy window.
The United State is Alone in High Insulin Prices
A recent study showed that the share of insulin users in North America is 14% of all insulin users around the world, while the percent of sales in North America is near 50% of total world-wide sales. Insulin users in North America contribute a disproportionate amount to pharmaceutical companies’ bottom lines. Looking a little deeper, we know that insulin in Canada can be purchased for approximately $30 per bottle with no prescription required, while in the US it is $330 for the same exact bottle of insulin.
Part of the reason prices are so much cheaper is because other countries do not have the BPM system. In other countries, the countries themselves act as their own BPM’s negotiating directly with drug manufactures. As a result, the citizens of other counties see the benefit of lower drug prices, rather than BPM’s or private insurance companies.
Saving the next Alec Smith
The tragedy of Alec Smith serves to show us that the United States healthcare system is in a desperate state of disarray. With each major player blaming each other, there seems to be no common consensus on where to start to fix it. But one thing that is certain, change must come. The United States of America cannot continue to be a world leader in anything, when our average citizens can’t afford lifesaving medicine they need.
What do you think of Alec Smith’s story? Do you think BMP’s are to blame? Should drug companies be more transparent in their pricing? Be sure to leave your thoughts in our comment section below.
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