Why do pharmaceutical companies give away some expensive …

This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands?

Check out more from the series here.

Listener Mattan Schuchman from Baltimore asked:  Why do pharmaceutical companies charge exorbitant rates for their products but then give them away for free or virtually no cost to most patients, regardless of income, through patient assistance programs? Is this something that they do to get a tax write-off for a charitable contribution?

This is particularly common among “specialty drugs” like those used to treat multiple sclerosis. A prescription for Mayzent, a drug used to treat multiple sclerosis, can cost upwards of nearly £10,000. But a financial assistance program offered by the drug’s manufacturer might mean you don’t have to pay any co-pay at all. Patient assistance programs help provide patients with drugs for free or at a lower cost than they normally would have to pay.

These programs were in the spotlight recently after Moderna faced pressure for saying it would raise the price of its COVID-19 vaccine. The pharmaceutical giant is expected to raise the price of its vaccine from £26 per dose to between £110 and £130, but said it would still be available for free for many patients through a patient assistance program. However, Vermont Sen.

Bernie Sanders has criticized these programs, calling them “poorly designed” and “extremely difficult, if not impossible, for patients to access.”  Health experts say that while patient assistance programs can provide financial relief for patients on an individual level, they actually drive up premium prices, leading to higher prices for all of us.

How patient assistance programs work 

Some pharmaceutical companies have their own patient assistance programs, while others are offered by independent charities that are funded by the pharmaceutical industry.  Although companies might invest in free drug programs that are geared toward the uninsured, funds primarily go to assistance programs that provide coverage for those who already have health insurance, said Stacie Dusetzina, a professor at Vanderbilt University Medical Center.

“So companies basically will create a situation where they can lower the price to the patient, but charge as much as they want to the health insurance plan that is covering that patient,” Dusetzina said. “So it seems like a really charitable thing to be doing. But it also creates a setup where companies can raise their prices pretty substantially.” Dusetzina said Medicare prohibits people from using coupons, so instead, Medicare beneficiaries can get support through a foundation or charity.

“That allows them to pay their co-pays, or whatever part the patient owes. And then the health plan pays the rest of that usually very large bill,” Dusetzina said. “It is often a means to basically ensure that people fill these drugs, and most of those payments are being made by the health insurance company rather than by the patient or by the manufacturer.”  Ariadne Fugh-Berman, a pharmacology and physiology professor at Georgetown University Medical Center, said these programs are a way for pharmaceutical companies to deflect attention from high drug prices and bolster their reputation.

“They really will do anything to avoid government regulation of drug prices,” Fugh-Berman said. “They want to give the impression that they are doing something about it.”  The Johns Hopkins Bloomberg School of Public Health released a study back in 2019 on independent charity prescription drug assistance programs, finding that nearly all failed to offer coverage for those without insurance.  These programs offered varying forms of support.

Some offered co-payment assistance, while others offered the choice of helping with co-pays or insurance premiums. Eligibility requirements entailed a combination of having health insurance, a prescription for the drug being covered and proof of income.  Gerard Anderson, a health policy and management professor at Johns Hopkins University who co-authored the 2019 study on charity drug programs, noted that sometimes companies will give away drugs for free entirely, and aren’t merely providing assistance.

Anderson said there are various reasons for this: the drug might not cost a lot to make in the first place, it’s an opportunity for a pharmaceutical representative to make a new product pitch to a patient, or they get at tax write-off thanks to the donation. “Depending on how much they say the drug is worth, it can actually be worthwhile for them to have a bigger tax deduction than it costs them to produce the drug,” Anderson said. 

The problem with assistance programs

Part of the reason why economists dislike assistance programs is because your health insurance is supposed to guide you toward the drug that’s the best deal for them, Dusetzina explained. But if our health insurance system has to end up paying exorbitant prices for drugs, that puts pressure on it to raise the price that all patients pay for their insurance policies. 

While patient assistance programs and coupons are technically different, the issues with coupons highlight some of the problems with discounts.  Say there’s a cheaper generic drug available to you and the more expensive brand-name drug. Your health plan will want you to get the generic drug, since it’s cheaper overall.

But a pharmaceutical company might offer you a coupon, making the brand-name drug cheaper for you as an individual. But it’s still expensive for health insurers, Dusetzina explained.  “Coupons are really problematic, because [they] doesn’t allow insurers to kind of steer you to the drug that’s the best deal for them,” Dusetzina said. 

Anderson also said coupons could lead to higher premiums. Let’s say a drug company wants to charge £100,000 for a drug. You might have to pay £10,000, but if you get a coupon, you might not have to pay anything.

But the drug company will still end up making a lot of money.  “They haven’t gotten their £10,000. But they’ve gotten £90,000 from the insurance company,” he said.

So in that case, he added, nothing is stopping them from raising the price to £110,000 or even £150,000.  Anderson said that trying to reform these programs would be challenging. “We haven’t figured out a way to do so. Some people have said that we should just ban them, but you’re essentially taking a free good away from somebody who’s sick,” he noted. 

To tamp down on prices, Fugh-Berman said she would like to see federal legislation addressing this issue. As of right now, Medicare cannot negotiate prices with manufacturers.  “We’re not allowed to negotiate drug prices, and we have the highest drug prices in the world.

Who knew?” she said. 

Stories You Might Like

There’s a lot happening in the world.  Through it all, Marketplace is here for you.  You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just £5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.  

Tags:

closet listed on couponmatrix.ukfarah listed on couponmatrix.ukibis listed on couponmatrix.ukla-tasca listed on couponmatrix.ukmercier listed on couponmatrix.ukreiss listed on couponmatrix.uk
closet listed on couponmatrix.ukEvery single item in the Closet London collection tells a story and is inspired by the confident and feminine style of the Closet Women. Whatever you have planned, your Closet voucher code means you can always find just the right item of clothing for every occasion, without breaking the bank. Full of personality, elegant shapes, and stunning prints, when you shop with Closet London you’re getting more than just an outfit: you’re getting a piece of their story.
farah listed on couponmatrix.ukFarah's distinctive logo has played a part in numerous British cultural phenomena over the years, stemming mainly from hard-wearing properties not found in rival brands aimed at a similar demographic. Their trousers and tops look upscale enough to get you into any establishment, but won't be ruined by the odd drink stain - which explains why they're still highly sought-after. Use our Farah discount code to buy into this legendary brand at street-level prices, and you can join millions of happy customers who transcend the fashion cycle with a label that's so iconic it never needs to prove itself.
ibis listed on couponmatrix.ukIbis have been the go-to hotel for travellers on a budget for generations, and can always be relied upon for solid, reliable accommodation that costs less than the rest of its peer group without cutting any significant corners.
la-tasca listed on couponmatrix.ukLa Tasca is the nation’s best-known and most reliable tapas chain - and they know how to put on a party as well. You can put your La Tasca voucher to use whether you fancy a lively meal for two, want to push the boat out on payday or are planning a serious celebration. Alongside an eclectic menu of superb dishes from all over the Iberian peninsula you’ll also find an inexhaustible cocktail menu - so be sure to arrive thirsty, with a decent appetite.
mercier listed on couponmatrix.ukMercier makes it hip to keep it casual, boasting a catalogue stacked with tracksuits, tops, joggers and other essentials fit for an urban wardrobe. Whether you like to hang on the high street or chill in your local park, a Mercier discount code is all you’ll need to chill in style without breaking the bank. As a brand built for social Saturdays and lazy Sundays, it’s impossible not to take it easy whenever you rock the Mercier style.
reiss listed on couponmatrix.ukFashions come and go but the mark of a quality brand is that their clothing remains timeless as the brand continues to move forward with each season bringing the best in men’s fashion and women’s fashion. Reiss are once such brand, bringing high-end fashion to local streets - a vision realised by founder and fashion guru David Reiss. Whether you are going on holiday, have a night out or just fancy updating your wardrobe, make use of a Reiss discount code from Groupon to help save money on the latest fashion.