On the surface, the position appears completely counter to what a business organization would typically advocate.
Yet the ever-rising costs for prescription medications has led the Grand Rapids Area Chamber of Commerce to support requiring pharmaceutical companies to explain certain increases in drug prices, the costs to research, develop and manufacture a drug, and how much it invests in clinical trials.
That kind of transparency — embedded in a state task force’s report on drug costs — would begin to create greater public understanding on how prescription drugs are priced as health care costs remain a top concern for employers, said Andy Johnston, vice president of government affairs at the Grand Rapids Chamber.
“We’re unique (among) business groups with this position,” he said. “When it comes to health care costs, it’s a significant burden on American businesses and it places us at a disadvantage in the global marketplace. Also, given the amount of taxpayer dollars spent on these, it seems like a reasonable regulation to support.”
That’s why the Grand Rapids Chamber last year backed statewide legislation to require pharmaceutical companies to report an itemized account of what goes into a drug’s price when its wholesale or treatment costs exceed $10,000 in a year. The report to the Michigan Department of Health and Human Services would have required the total costs for making and distributing the drug, R&D costs by the company or a third party or the cost of acquiring the drug, and what the firm spent on its marketing and advertising.
Revisiting the issue
The issue will likely resurface in Lansing in the new legislative term. A task force formed a year ago by Gov. Gretchen Whitmer issued a report that called for greater transparency from pharmaceutical companies and pharmacy benefit managers on prescription drug costs and how prices are set.
The Prescription Drug Task Force issued several policy and legislative recommendations on cost transparency, accessibility, affordability and accountability. They cover issues such as publicly reporting data on drug prices and price controls that include setting caps on prescription copays built into health insurance policies. The recommendations also suggest prohibiting so-called “gag clauses” by pharmacy benefit managers (PBMs) that prevent pharmacies from telling customers about lower-cost alternative medications or generic drugs. Many of the task force’s recommendations were covered in legislation that lawmakers considered in 2020. Some of the bills had legislative hearings, but none ultimately passed. The report from the bipartisan task force sets the foundation for the reintroduction of bills in 2021.
“It sets up, hopefully, a more robust policy discussion on these issues,” Johnston said. “Given the bipartisan nature of the task force, we’re hoping that could signal some potential agreement.”
Whitmer noted the task force’s report in last month’s State of the State address. She pointed to the bipartisan nature of recommendations and the rising cost of prescription medications.
“Now, let’s get this on the legislature’s to-do list,” Whitmer said.
Rising costs, varying interests
The task force report found that over the past six years, the average prices for drugs to treat “diabetes, heart disease, depression and other common conditions have more than doubled. These prices are set with little transparency but with tremendous consequence.”
Prices for common medications older adults use increased at 10 times the rate of inflation over five years, and the average price for prescription drugs grew nearly 60 percent from 2012 to 2017, according to the report. Survey data indicate that in 2017, nearly one-third of Michigan adults stopped taking a medication because of the costs.
“Prescription drug prices have been rising at unsustainable rates,” according to the task force report. “Residents across Michigan must often choose between filling life-saving prescriptions and paying rent, buying food, or obtaining other critical essentials.”
The issue and the complex way drugs are priced pits varying interests against one another.
In a statement emailed to MiBiz, the industry trade association Pharmaceutical Research and Manufacturers of America (PhMRMA) put part of the cost issue on insurance drug copays that have risen over the years, particularly for name-brand and costlier medications, as employers sought to mitigate rising premiums.
“We are committed to working with Gov. Whitmer and the Michigan Legislature to support legislation that will save Michiganders money at the pharmacy counter,” PhMRMA said. “Policy solutions that lower out-of-pocket costs for patients will require that all actors across the supply chain do their part. To effectively address patient affordability challenges, we need long-term, common-sense reforms like lowering patient cost-sharing, allowing patients to spread their costs throughout the year and requiring insurance companies and pharmacy benefit managers to share negotiated rebates and discounts with patients.”
In a legislative hearing last spring on bills to address rising drug costs, a representative from PhRMA explained that prices for drugs now on the market support industry R&D that costs billions.
MichBio, the statewide trade association for the industry in Michigan, opposed much of the legislation that lawmakers considered in 2020. Recommendations in the task force’s report offer little new beyond what lawmakers considered last year, MichBio CEO Steve Rapundalo said.
The report “was a foregone conclusion and a done deal right from the get-go,” and also was “anti-industry” and “anti-innovation, and done without an independent assessment or analysis on health care costs,” Rapundalo said.
If lawmakers want to make prescription drugs more affordable for consumers, they should start with out-of-pocket costs rather than forcing drug makers to part with confidential, proprietary pricing data, Rapundalo said. Publishing list prices for drugs would mean little to consumers, “because that’s not what they’re paying and there are so many middlemen in between,” Rapundalo said.
“Insurance design reform is where you want to start if you really want to impact out-of-pocket costs,” he said.
MichBio would support bills to ensure savings from rebates negotiated between pharmaceutical companies and PBMs are passed directly to consumers and to ban gag clauses that are also included in PBM contracts with retail pharmacies, Rapundalo said.
“The consumer should know when they go to a pharmacist if a copay is cheaper in cash than it is through the insurer, and if it is they should know that and be allowed to pay for that. Yet there are agreements in place that forbid the pharmacist from disclosing that, and that’s not fair,” he said.
Employer health plans
Many employers have varying tiers in their drug benefits that require higher copays for name-brand and higher-cost drugs. The higher the tier, the higher the required copay.
Prescription copays nationally in 2020 ranged from $11 for drugs that appear in the first tier of a prescription benefit, to $116 for costlier fourth-tier drugs, according to an annual survey on employer health care costs by the Kaiser Family Foundation. The cost of a family health plan in 2020 averaged more than $21,300 nationally, or more than triple two decades ago.
In West Michigan, where the average cost of a family health plan last year was more than $17,300, employers answering an annual survey by The Employers’ Association reported average copays of $20 for generic drugs and $60 for brand-name drugs. Copays averaged $80 for drugs that were listed on a health plan’s third tier. Drugs listed on higher tiers had a copay for 20 percent of the cost, for a maximum $250 for the fourth tier and $450 for the fifth, according to The Employers’ Association.
Representatives from health insurers in Michigan argue that imposing caps on drug copays written into employer health plans does nothing to alter the course of rising prices.
Dr. James Forshee, senior vice president and chief medical officer at Priority Health, said some 800 brand-name drugs had price increases this year that average 4.5 percent. Specialty drugs commonly used by Priority Health members have gone up an average of 7.9 percent this year, or about $6,800 more annually, Forshee said.
Even insulin that once costs $20 or $30 a month many years ago now costs as high as $1,000 monthly, Forshee said.
“That’s the issue. It’s not whether you have a $100 copay. It’s the overall total cost,” he said. “Eventually, someone’s covering that total cost. We can get lost and hung up on where are the copays and where are the deductibles. I’m not sure that isn’t a distracting discussion from the fact that the prices have gone through the roof.”
Transparency on drug prices and how they are set remains the top legislative priority for the Michigan Association of Health Plans (MAHP), which represents HMOs in the state.
The MAHP has long advocated for greater transparency in drug costs, said Executive Director Dominick Pallone.
“At the end of the day, there’s only one entity that sets the list price, and that’s manufacturers. At the very beginning of the price-setting issue are manufacturers,” Pallone said. “This is the only product that I know of that the longer it’s available, in some cases, the prices go up.”
While supporting greater price transparency, the MAHP would object to greater regulations on PBMs that act as a go-between and negotiate pricing between pharmaceutical companies, health plans and pharmacies.
“PBMs are an important player for our industry right now. They help bring size to the negotiation with pharmacies on one end of the equation, and negotiation with manufacturers and wholesalers on the other end of the negotiation,” Pallone said. “Without PBMs our prices would be higher.”