Out-of-pockets costs: Medicine’s biggest problem and government and industry’s biggest opportunity

Seniors in the United States are facing a drug affordability crisis. While overall spending on medicines remains relatively flat, patient costs continue to rise. Last month, IQVIA published a new report that noted nearly 20 percent of Medicare patients pay more than $500 out-of-pocket per year for prescription drugs, compared to only 8 percent of patients in commercial plans.

The significant cost-sharing burden is taking a serious toll on patients’ ability to access needed medicines. In fact, there is evidence that at least a quarter of new Medicare Part D prescriptions are abandoned at the pharmacy counter if beneficiaries are asked to pay $250 or more, which unfortunately is often the case. This number can exceed 50 percent for new prescriptions. This is bad not only for patients, but also for overall health-care system costs.

It is critically important, therefore, that we review cost-sharing burdens in the Medicare prescription drug program and take steps to modernize the benefit to ensure seniors don’t have to make the difficult decision of forgoing their needed prescriptions.

The first step in modernizing the Medicare drug benefit is to enact reforms to the rebate model by requiring that negotiated rebates are passed through to consumers at the point of sale. This would eliminate one of the most misaligned incentives in the pharmaceutical supply chain. Rebates are negotiated payments that pharmaceutical manufacturers make to pharmacy benefit managers (PBMs) that help companies including Pfizer ensure access to our medicines by the people who need them most.

The problem is the system is not transparent such that patients who are taking the medicines for which rebates have been negotiated are not aware of the rebate and do not appear to be benefitting directly from them either. The effect of this market distortion is that the patients who should be benefiting from these negotiated discounts are subsidizing the premiums for everyone else in the Part D program.

By passing these negotiated rebates directly to patients at the pharmacy counter, we estimate that the average Medicare recipient using Pfizer medicine would save $270 a year if the plan was implemented. Some patients taking our medicines will save more than twice that.

Concerns have been raised the savings now captured in rebates will be lost under a new system, but Pfizer believes those concerns are unfounded. Contrary to what some analysis has said, rebate reform is not a windfall to Pfizer or the pharmaceutical industry for a simple reason: we are committing to convert all our rebates to point of sale discounts to deliver savings to patients at the pharmacy counter.

What’s more, the system will become simpler and more transparent. Everyone — especially the patient — will be able to see what the discounts are at the pharmacy counter. That means we fully expect that insurance plans and PBMs will be able to negotiate even greater discounts above the level of our current rebates.

These reforms are sensible and benefit the patient. We must also keep in mind that reforming rebates is an important step in reforming and modernizing the Medicare drug benefit, but it is only a partial solution and broader reforms are needed. We need to start by adding a reasonable out-of-pocket maximum to the Part D benefit. However, we can and should go further and fundamentally restructure the Part D benefit design so that it is simpler for beneficiaries and more sustainable for the government.

There is a consensus across the health-care sector and in Washington that the system by which medicines are paid for is broken. That’s not a new theme in Washington, but what is new — and encouraging — is the clear interest in forging partnerships to develop solutions that relieve patient affordability burdens, especially those that fall on seniors. Done right, it could transform the system in the direction of lower out-of-pocket costs, better access and adherence and improved patient outcomes for all.

Justin McCarthy is the senior vice president who oversees Pfizer’s Patient & Health Impact group.