pill wars 2

I am talking about the war that is taking place in our country between drug manufacturers and insurance companies, one that places our citizens on a battlefield between these giant businesses every day in our country. Americans are being wounded in their wallets and, rightfully, are growing frustrated to the point of outrage. In fact, according to a Kaiser poll taken this summer, 72% of Americans believe that prescription drugs are too expensive and that something needs to change. The same poll found that 86% of Americans want drug companies to publish details on how they set their prices and 83% favor having the government negotiate the cost of drugs.

“Prices are 50% to 80% lower anywhere else in the world than they are in the United States.”

Dr. Hagop Kantarjian, Professor & Chair of Leukemia at the University of Texas MD Anderson Cancer Center

The cost of prescription medicines in the United States impacts your out-of-pocket costs when you pay for a drug, as well as the growing price of medical insurance premiums that we all pay to protect ourselves, an increasingly important topic given America’s mandate that everyone now carry health insurance or face being fined for being uninsured due to the Affordable Care Act (ACA). As America’s population ages and people live longer the cost of prescriptions will become increasingly more important than ever before. And I fear less sustainable given the truly massive increases in recent years in drug costs. We see and hear this everyday as we help our clients with their claims and questions and, with that in mind, I’d like to share with you why I believe that American consumers are engaged in a war over the cost of prescription medications.

Two reports out just last month illustrate why the cost of prescription medications are such a profound, and growing, problem here in America.

First, the Centers for Medicare and Medicaid Services (CMS) reports that US Healthcare spending rose to $ 3 trillion last year and attributes the increase to ‘the ACA’s expansion and rising drug costs’. On the topic of prescription drugs, Richard Frank, Assistant Secretary for Planning and Evaluation at HHS, stated that prescription drug costs ‘rose more than 12%’ to $ 297.7 billion, its largest annual increase in more than a decade.

Two days later the Senate Finance Committee issued a report that followed 18 months of research and reviewing over 20,000 pages of documents from drug maker Gilead Sciences. The federal government has been investigating Gilead’s hepatitis drug Solvaldi’s high cost ($ 84,000 for a 12 week treatment cost) and wanted to understand why it was so expensive. The short answer, I suppose, would be stated in one word, ‘greed’. The Senate report found evidence that Gilead executives “knew in 2013 that their plan to charge an exorbitantly high price for a powerful new hepatitis C drug would spark public outrage but they pursued a profit driven strategy anyway. Gilead could have priced Solvaldi at $ 50,000 but decided it would lead to significant foregone revenue”. The report also found that Gilead priced Solvaldi so high in order to be able to charge a high price for another one of its drugs, a follow up medicine (Harvoni) to treat the same affliction and that came to market a year later with a list price of $ 94,500.00. The Senate’s report concluded that its findings are “a warning about what could happen with other innovative treatments for cancer, diabetes, Alzheimer’s and HIV”.

The nearly 13% increase in drug costs in our country  last year or Gilead’s suggested greed only scratch the surface of the war that is taking place in our country today. If you take a prescribed medicine, or might one day need to, or if you buy medical insurance in one form or another as most all of us do, the following points might help you understand what’s happening and why, I fear, that without radical change will continue to rage on at consumers’ expense.

1. The legal drug trade in the United States is a huge business.

50% of Americans take at least one prescription. 40% take four or more. You need only look at how many drug stores have popped up in neighborhoods all over America in recent years, often one next to another, or in retailers such as Publix, Target or Wal-Mart, to know that an awful lot of legal drugs are being sold.

In fact, the legal drug business in America is getting bigger by the day. As noted above, in 2014 legal drug prices increased nearly 13% over their cost in 2013, to $297,700,000, while our general economy grew by just 8/10th (.8) of 1%. And it’s predicted that legal drug costs will increase about 10% per year over the next 10 years. As our population ages, as Baby Boomers now begin to enter their golden years, as well as live longer than past generations, the cost of prescriptions becomes an increasingly more important social concern in my view as much as a business issue for drug makers and insurers.

2. Why are costs increasing so much and so quickly?

Well, for one, America is one of the rare civilized countries on earth that does not have some sort of regulatory body or government entity reviewing the prices of legal drugs. Medicare, a significant payor of medical bills, prescriptions included, is forbidden by law from negotiating the price of drugs. As a result of The Medicare Prescription Drug, Improvement & Modernization Act of 2003 (click here to find the law) drug prices billed to Medicare by the drug manufacturers are non-negotiable. Once the Federal Drug Administration approves a given drug for use on humans, the drug maker can charge whatever they want.

3. The greed is not isolated to a few drug makers or even new innovative drugs.

Not only are drug prices not regulated by anyone when they come to market but, as you can see, established drugs costs are increasing at alarming rates. Consider the case of drug maker Turing Pharmaceuticals and its 53 year old drug Daraprim, a medicine used to treat a parasite infection called Toxoplasmosis. Over the last year its manufacturer has increased its cost from $13.50 per pill to $750.00 per pill here in the United States.

Yes, $ 750.00 per pill.

Yes, a 5,455% increase in price.

And while this is but one example it’s an eye opener not only in terms of its sizable increase but how the cost compares at a variety of American drug ‘stores’. From the website GoodRx.com here are last week’s quoted prices for 60 25mg tablets of Daraprim from the 10 lowest cost stores:

Drug StoreQuoted Cost
Walmart$ 44,963.10
Sam’s Club$ 44,963.10
Kmart$ 44,963.10
Kroger$ 45,638.10
CVS$ 45,908.40
Target$ 46,043.40
Publix$ 47,819.20
Safeway$ 47,819.20
Walgreens$ 48,669.00
Rite-Aide$ 49,226.25

You might have recently heard about Turing Pharmaceuticals and its CEO, Martin Shkreli. Mr. Shkreli, who, before he bought Turing owned a biotech company and before that ran a hedge fund, is being investigated by the United States Senate as it reviews pricing practices of his company and three other pharmaceutical firms. Mr. Shkreli has recently been called The Face of Greed by activists intent on publicizing the massive price increase of his drug and the overall costs of prescriptions. Mr. Shkreli, facing a storm of bad publicity from the Senate hearings, recently announced that his company would make a ‘modest’ decrease in the price of this drug.

The apparent bad ‘PR’ and being subject to a Senate Hearing aside, Mr. Shkreli does not seem to understand people’s concern with drug prices today or how such an astronomical increase in cost causes consumers so much pain up to and including bankruptcy over their costs in a growing number of patients.  Last month, he explained to CNBC that reducing his prices will not matter, saying “I think there’s a perception that these price increases will change the industry or are changing the industry. They’re not. Daraprim’s one of the smallest branded medicines in the U.S. These are little drugs, they’re all minuscule products, they will absolutely not change the industry. I don’t know whether Daraprim could be called a ‘little drug’ or not but it seems to me that it must have had a pretty BIG value when I read that Mr. Shkreli’s firm paid $ 55 Million for it in August of this year when he purchased the drug’s rights from its prior owner, Impax Laboratories.

Of course, it’s not just Daraprim that has insurers, consumers and a growing number of lawmakers concerned about drug costs. As you read above, the Hepatitis C drug sold by Gilead Sciences (Solvaldi) has a price of about $ 84,000.00, a price of $1,000 per pill per day. The good news is that when taken in combination with two or three other pills, Solvaldi is estimated to cure about 80% of the cases it treats within those 12 weeks, a truly amazing outcome much less one that has fewer side effects and a shorter treatment cycle than other historic options. The initial treatment results are impressive for sure, but insurers and consumers (and the Senate Finance Committee) are increasingly concerned with whether such costs are affordable or sustainable.

3. And then there are cancer drugs.

If you only can watch or read one thing beyond this posting about the cost of legal drugs in America please consider viewing the October 2014 story on 60 Minutes entitled ‘The Cost of Cancer Drugs’. I think you will find it somewhere between frightening and enlightening. It’s the story of how some of the world’s foremost oncology doctors stopped prescribing certain drugs because they found those drugs to have limited added value for their patients over other options, yet, were bankrupting many of those patients as the drug makers essentially preyed on the fears of the sick at nearly any cost.

“These drugs cost too much. Cancer-drug prices are not related to the value of the drug.

Prices are based on what has come before and what the seller believes the market will bear.”

Dr. Leonard Saltz, Chief of Gastrointestinal, Memorial Sloan Kettering Cancer Center, Speaking to the annual meeting of the American Society of Clinical Oncology in May 2015

The cost of many cancer drugs cost nearly, or more than, $100,000 per year and some doctors have bravely begun using the term ‘financial toxicity’ to describe the economic burden that such drugs place on patients.

Eleven of 12 new cancer drugs approved by the FDA in 2012, for example, had a cost to the consumer of over $100,000.00.

Those courageous doctors profiled by 60 Minutes not only stopped prescribing drugs like Zaltrap, a drug that treats colorectal cancer and that was, at the time, twice as costly as a similar solution, Avastin, but they also wrote about what they’d done, and why, in op-editorials in the New York Times (click here for their fascinating editorial or find it listed on the right).

And what did the drug makers do when their prices were called into question by the doctors in just one editorial?

Like magic they dropped their prices in half.

The doctors also pointed out that some older drugs are dramatically increasing their prices, that it’s not just a new wiz bang drug that’s costly. Imatinib, for example, was mentioned as increasing from $28,000 a year in 2001 to $92,000 a year as of 2012.

To watch the 60 Minutes video, and as a consumer I do highly suggest that you view it, please click here.

5. Generics versus Brand Name Drugs

And while some estimates suggest that 90% of all prescriptions are for generic drugs it is interesting to know that brand name drugs cost, on average, nine times more than those of generic nature and some can cost as much as 33 times their generic equivalent.

6. Research & Development versus Marketing

If you’ve followed the story about prescription drugs costs for any length of time as I have you know the typical answer from drug makers. They have to charge high prices, they say, because of the supposed high cost of research & development that they incur to find the next cure for one thing or another. While there is no doubt that inventing a new drug is very expensive, I am not so sure we are being told the ‘full’ story. According to The Center for American Progress, drug makers spend more on marketing their products (18%) than on Research & Development. 

7. Can Insurance Companies Win The ‘War’?

I doubt it.

Consider the letter that arrived on my desk this week from a major, national health insurer. The name of the insurer is not important, this type of letter arrives from all of them from time to time and every insurer is struggling with this topic in ways that suggest to me that they are failing and lack lasting solutions.

The letter announced Changes Happening To Our 2016 Drug List and served, frankly to mention far more than some changes to their list. The letter begins by explaining that their insurance policy allows them to make changes twice a year, on January 1st and July 1st, and then goes on to say ‘Some Medicines will have new requirements or changes’.

What might those ‘new requirements’ or ‘changes’ be you ask? Well, the letter included the following listing, each of which can be seen as the weapons insurers (all of them) are using to try to fight the battle against high costs:

  1. Prior Authorization (meaning one’s doctor’s office will need to call the insurance company to get authorization before filling or refilling the impacted drug(s))
  2. Step Therapy (meaning the insurer will mandate that other, less costly, drugs be tried as a  first “step” before agreeing to cover a more costly option)
  3. Quantity Limits (meaning the insurer will limit the number of pills one can obtain at one time due to, they say, ‘safety concerns or to prevent misuse of these drugs’)
  4. Tier Changes (meaning what you pay for the drug, your copayment, will change (and by ‘change’ you can assume that means ‘increase’ for certain drugs)
  5. Not Covered (well, you know exactly what that means)

Now, I am not saying that any of these steps are somehow ‘evil’ but are, more so, indicative of the war that rages on around us and the weapons insurers are using to attempt to control costs, costs that not only impact their business but your pocket too. Whether it’s an increase in one’s copayment or a rate increase due to ever rising health care costs, the cost for legal drugs in America lacks any adult supervision or real control.

8. Merger Mania? Aetna/Humana and Anthem Blue Cross Blue Shield/Cigna

And beyond the type of steps noted above that insurers are increasingly taking related to one’s coverage, what else might insurers do to try to win their battles much less the war? Well, I am not sure they can win, at least not long term and at least not without consumers paying more and more of the costs of prescribed drugs and other types of medical care, but part of their solution is, they believe, to band together. And on that front July of 2015 was a very busy month.

On July 3rd Aetna announced that it plans to acquire its competitor Humana in a transaction valued at $ 37 Billion.  In announcing the transaction, a deal that is scheduled to close in 2016 as long as regulators approve the sale, the two insurers stated:

“The combined company will be well positioned to offer a broad choice of affordable, consumer-centric health care products, helping to constrain cost growth, improve health outcomes, and promote wellness. The combination will provide Aetna with an enhanced ability to work with providers and create value-based payment agreements that result in better care to consumers, and spread cutting-edge clinical practices and quality care.”

On July 24th  Anthem Blue Cross Blue Shield announced that it was paying upwards of $54 Billion to its competitor, CIGNA, in a deal that will create, if approved, America’s largest health insurer by insuring over 53 million Americans and generating sales of nearly $155 Billion per year. Anthem and CIGNA explains part of the reason for their merger by writing the following on a website they’ve created to explain the transaction:

Our responsibility as a health benefits company is evolving, and we recognize the need to help purchasers of health care decide how to choose and consume health care—not just pay for it. The combined capabilities of Anthem and Cigna, guided by our proven strategic pillars of provider collaboration, managing the total cost of care, and superior innovation will allow us to follow through on this important responsibility to consumers – (See more here)

And what might the medical industry think of these proposed mergers? Well if the President of the America College of Physicians, a Dr. Wayne Riley, comments to the U.S. Department of Justice in his December 3rd, 2015 letter are any indication then it would appear they are not pleased with what might happen. The full letter can be found by clicking here but his thoughts appear summarized by this statement from within the letter:

Consolidating four of the largest health insurance companies into two entities seriously threatens to undermine the spirit of competition in the health insurance market and could likely have adverse effects on physicians and patients,” Riley wrote. “It is imperative that the Department of Justice Antitrust Division consider both the local and collective impact these mergers could have, and block any deal that significantly increases health insurer concentration, resulting in decreased choice and increased cost for patients and employers, reduces access due to changing and narrowing networks of physicians and hospitals, or prevents physicians from negotiation over provision of health services with those insurers.”

The good news…

If you’ve read this entire posting, thank you. In doing so you’ve touched on a concern and passion of mine that’s developed over more than three decades of work within the insurance and benefits’ industry and one that concerns me more and more every day.

The good news, and it is both remarkable and indeed very good, is that modern prescription drugs help many of us live longer, healthier lives. And as a society we are living longer than ever, in part, due to amazing advances in medicine and wellness. Those trends will, experts suggest, continue and in a generation or two it’s predicted that humans might routinely live healthy lives for over 100 years.

This good news, of course, makes finding a lasting solution to the cost of care, something most everyone needs if they live long enough, more important today and in the future than ever before.

Run-away medical inflation and cost increases, left unchecked, will only lead to ever increasing medical insurance rates, lesser coverage and financial stresses on consumers that are simply not sustainable.

Should you have any questions about this subject, or any other related to the risks that you face, please contact any of the fine professional agents and underwriters here at Morris & Reynolds Insurance. It is our pleasure to help you and we look forward to providing your protection.

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Visit our ACA Compliance page

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Click Here to View “The Cost of Cancer Drugs”


Click Here to view The Medicare Act of 2003


Click Here to view Dr. Riley’s Letter to the U.S. Department of Justice


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