Why do pharmaceutical companies give away some expensive …

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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. 

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