We've heard testimony before Congress that it's the manufacturers' fault, the PBMs' fault, the gubmint's fault, employers' fault.
To unpack the issue we have to begin with the list price of drugs vs the actual price.
And we have to separate brand drugs vs generics; most of the press about prices pertains to brand drugs. These are medications that are still covered by patents; only the patent holder can sell the drug, and they can set any price they want. In work comp, brand drugs account for about 15% of scripts, but a bit over half of total drug costs; as the manufacturer has monopoly pricing power, that's not surprising.
(Generics are drugs that have lost patent protection and can be made and sold by any FDA-approved manufacturer.)
In work comp, most states with fee schedules use “Average Wholesale Price”, a metric that is published by several entities- Medispan is one of the more common. It's critical to understand that AWP is NOT the real “average wholesale price”, it is merely the price the manufacturer sent to Medispan et al. There's no checking, auditing, or verification of this price by any outside entity; there's no independent confirmation that the manufacturer's AWP is what it charges for the pill.
To estimate the actual price, one has to factor in rebates and other financial mechanisms used by manufacturers to market their drugs. Rebates are paid to Pharmacy Benefit Managers – that then pass most of the rebate $$ along to employers and insurers – to encourage the PBM to “put the drug on formulary.” In English, that means the PBM makes it easy and cheap for you, the consumer, to get that medication.
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