These Politicians Must be on Drugs (or Maybe They Should Be)

Rising drug prices and high-cost drugs have been in the news lately. Naturally, presidential candidates have weighed in on the issue in hopes of scoring some points with voters. Hillary Clinton would cap Americans share of the drug costs — which would do nothing about the actual cost except encourage price hikes. Bernie Sanders supports a single-payer system with strict price controls. Donald Trump has even proposed allowing the importation of cheaper drugs from abroad, many of which are cheap due to price controls in other countries.

Not to be outdone by presidential candidates’ bad ideas, state politicians have also proposed a hodgepodge of bad ideas themselves. Although in many of these cases state politicians want consumers to pay more (not less); and the beneficiaries of the regulations are often local pharmacies. Here’s the deal. Obamacare requires an essential benefit package that includes some level of drug coverage. Drugs benefits are generally administered by a prescription drug plan.

An estimated 70 percent of Americans are enrolled in a drug plan through their employer, health insurer or Medicare Part D. Millions more — mainly the uninsured — have joined discount drug card programs. When millions of Americans who are enrolled in drug plans walk into their neighborhood drugstore they qualify for discounted drug prices that have been negotiated on their behalf by a drug plan. However, uninsured consumers with discount drug cards and those enrolled in health plans with insurance deductibles that have not been met must bear the cost of drug purchases themselves, out of their own pockets.

The problem for drugstores is that consumers covered by drug plans (or drug cards) aren’t as lucrative as consumers without a plan who pay cash. Walmart admitted a few months ago that Obamacare is eating away at its pharmacies’ bottom line. Expanding drug plans cuts into pharmacy profits, and drugstores want a way to raise prices on drug plans customers.

When drug plans assemble pharmacy networks, they negotiate the lowest possible prices. Maximum allowable cost (MAC) price lists are a tool health plans, drug plans and discount card sponsors use to place an upper payment limit on what health plans and consumers are required to pay for a given drug. Pharmacies have agreed to abide by these terms; upper payment limits are negotiated annually with drugstores, or pharmacy service administrative organizations to which they belong. With no limits, pharmacies would have little reason to hold prices down because they could merely pass on higher costs to consumers. In an attempt to insulate their industry from the effects of rising wholesale drug prices (and consumers enrolled in drug plans), the pharmacy trade associations in many states are pandering for protection all across the country. They are currently lobbying Oklahoma legislators for regulations allowing pharmacies to ignore negotiated discounts and pass more of the price hikes on consumers in violation of contractual agreements.

An existing law in Oklahoma (and many other states) already requires weekly (or frequent) updates to MAC lists and allows pharmacies to contest MAC prices they feel are inaccurate or unfair. The existing laws were passed because prices for a few generic drugs were rising faster than MAC lists were being updated. Oklahoma legislators are currently debating SB 1150. As amended, SB 1150 would grant pharmacies the right to contest not only the MAC list price of any drug they dispense, but also contest other contractual arrangements, such as customer co-pays and dispensing fees. Dispensing fees are the negotiated fee for counting, bottling and distributing medications to customers. This is unprecedented pricing power for a pharmacy to wield over its customers enrolled in drug plans.

Further attempts to regulate the use of MAC lists would inhibit the use of a tool drug plans use to promote competition among pharmacies and drug wholesalers. If passed, this new law could cost Oklahoman — and residents of other states — a bundle. When regulations that benefit an industry are adopted in one state, lobbyists in other states copy them and try to pass them as well. More than a dozen states have laws regulating some aspect of MAC lists. In the past several years legislation has been debated in nearly a dozen states with more likely to follow. Moreover, this broadens the scope of existing laws to the extent it could also be used by pharmacies to demand higher fees for brand-name drugs whenever a pharmacy feels prices aren’t high enough.

Today most health plans include some level of prescription drug benefits. Access to negotiated discount prices are the result of bargaining power — the ability of the drug plan to deny business to a firm if their bid isn’t favorable. As a result of drug plans and the competition drug plans create among pharmacies, relatively few patients are unable to afford their medications. Indeed a recent survey found three-fourths of retail prescriptions cost the patient $10 or less. But this could all change if new laws allow drugstores to renege on negotiated contractual arrangements prior to their expiration. Consumers, employers and taxpayers will be the ultimate loser in that deal. SB 1150 as amended is a bad deal for Oklahoma consumers, employers and taxpayers. Unfortunately, it could become a model for lobbyists in other states to try as well.

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