Sky-high prescription drug costs remains one of the most hotly contested issues in healthcare today. U.S. prescription drug spending exceeds $500 billion a year and is growing at a rate that’s three times faster than inflation, according to a House Ways and Means Committee report.
While there is no shortage of policy levers being proposed and pulled at both the state and federal levels to address it, unfortunately the policies do nothing to address the core issue: information asymmetry. Unlike other decisions we make every day that include an exchange of money for goods or services, decisions around which prescription is most appropriate is made in a virtual black hole, a vacuum, without any outside knowledge. Consider the act of grocery shopping: different brands of cereal are positioned right next to each other, with prices clearly labeled and nutritional information available for comparison. Or perhaps a better example during Covid-19: searching for virtually anything on Amazon.com brings up not just the specific item you are looking for, but alternatives along with prices, delivery options, and user reviews.
Unfortunately, our byzantine healthcare system has not allowed for this type of transparency.
Neither doctors nor their patients have drug pricing information at the point of care. They don’t know which drugs are covered under the patient’s insurance, what the out-of-pocket costs will be, if there are more affordable therapeutic alternatives, or even if there are cost differences between pharmacies.
Most doctors understand that price is an important factor in patient medication adherence and are interested in getting drug price information. But what stands between them, their patients, and this information is a world of complexity that includes health insurers, pharmacy benefit managers (PBMs), pharmacies, drug manufacturers, and employers, and the many layers of benefit design, rebates, and reimbursement flows between these different players — each with an economic stake in the process that inhibits the free flow of accurate, up-to-date information to doctors and patients.
In short, there is an overwhelming and systemic information asymmetry problem: nobody is operating with drug pricing information when it is needed most. At least a part of any solution must be figuring out how to get market mechanics and systems in place to improve information access at the point prescribing decisions are made, allowing the drug pricing market to start working as a functioning, competitive market should.
Fortunately, what stands to make that possible is a combination of smart policy and digital health platforms that can connect different parts of the healthcare system together to request and share drug pricing information in real time.
Many Policy Levers Offered, But Most Have Been Misaligned To Market Realities
There have recently been numerous policy solutions introduced recently aimed at addressing drug pricing practices. The Lower Drug Costs Now Act (H.R. 3) — which cleared the House in December 2019 but has yet to pass the Senate — would allow the federal government to “negotiate” the prices of up to 250 popular, brand-name drugs without generic competitors and make the negotiated price available to both Medicare and private payers.
One of the many issues with H.R. 3, however, is that brand name drugs only account for a small portion (10 percent) of prescribed medications in the country. Most drugs dispensed in the U.S. are generics, which actually continue to see prices fall; 2016 – 2017 marked the third consecutive year of substantial price drops, according to the AARP Public Policy Institute. (Notably, a December 2019 analysis from the Federal Drug Administration (FDA) shows how greater competition among generic drug makers is associated with lower generic drug prices.)
There are also concerns that H.R. 3 would stifle innovation, with the Congressional Budget Office estimating it would cause a $1 trillion reduction in drug companies’ revenues over the next decade. Because drug companies typically reinvest 20 percent of their revenues into research and development, that $200 billion decrease could mean 100 fewer drugs developed over that period, according to the White House’s Council of Economic Advisers.
Real Time Benefit Tools: Smart Policy That Addresses Information Asymmetry
Beginning in January 2021, Medicare Part D plan sponsors are required to implement real-time benefit tools (RTBTs) to make drug pricing and benefit information available at the point of care. Because RTBTs deliver accurate medication cost and insurance coverage information to providers using electronic health records (EHRs) before a drug is prescribed, they can meaningfully improve care plan and medication adherence, while having a substantial impact on cost. According, According to CAQH, prescription price transparency tools have the potential to save commercial health plans $795 million annually and the commercial healthcare industry as a whole $3.7 billion annually.
While widely-available RTBTs are essential, there are two challenges with this specific rule. First, it does not apply to health plans’ private sector members, which account for 67 percent of insured lives in the nation. Second, with over 950 part D plan sponsors (often offered by pharmacy benefit managers or PBMs) and more than 600 EHR and Health IT developers, establishing the thousands of point-to-point digital connections/interfaces necessary to support the transmission of pricing information in real time would be wildly inefficient. Each of these interfaces would also require maintenance to handle updating, versioning control, and technical support.
Thankfully, there is reason to believe both of these challenges can be overcome. On the first challenge, prior research suggests that when CMS requires Part D plan sponsors and providers to adopt technology, there is a spillover effect that accelerates adoption on both sides. Pooja Babbrah, PBM Practice Lead at Point-of-Care Partners (a health IT management consulting firm), notes that “about 80% of PBMs already have some type of tool in place. Many are connecting to multiple intermediaries [platforms] to ensure they have connectivity to 100% of doctors.”
On the second challenge, there are digital health companies like RxRevu, which is seeking to connect the PBMs and providers using EHRs onto a common platform to allow them to request and retrieve drug pricing information in real time. As Babbrah alludes to above, while RxRevu is not the only company seeking to build a platform, what distinguishes RxRevu and other platforms is that their role is primarily to connect the different sides’ software systems, rather than try to operate or compete with the end user software that PBMs and providers use. In doing so, platforms limit their purview to orchestrating information exchange, rather than influence how that information is used.
As the January 1, 2021 deadline draws closer and more PBMs and EHRs connect to digital health platforms, there is are opportunities to help ensure prescription decisions start to function more like markets should, including by:
1) Making pricing transparency and widespread RTBT adoption a reality: Platforms reduce the number of connections that would have to be created between all individual electronic health record (EHR) and PBMs for RTBTs to be deployed broadly, in turn reducing the redundancy of integration and ongoing technical support costs. In addition, platforms typically only generate revenue when transactions flow at scale, so they have incentives to solve problems on both sides to ensure demand. Babbrah notes this isn’t just theoretical, suggesting there is significant work to be done to improve information flow and consistency. “Provider feedback to RTBT to date has been mixed. Some providers understand this is new technology, and appreciate the value of the data they get, when they get it. Others are frustrated that they can’t get the same information for every patient. What they may not understand is that those network connections may simply not be built out yet, but of course it’s fair for them to be frustrated,” Babbrah says.
Kyle Kiser, President and Chief Strategy Officer at RxRevu, agrees on the need to focus on value beyond the rote transactions. “We’ve seen increased interest from PBMs and EHRs who are looking to meet the upcoming 1/1 deadline to connect patient and PBM data. What we’ve found, however, is that this has to be more about delivering value to patients and improving provider decision making – rather than just meeting the minimum requirements laid out by the RTBT rules. That is where we and our customers are focused.”
2) Promoting competition and patient choice: While overall drug spend has been moderated by the increasing use of generics — which account for 90 percent of all dispensed drugs — it’s important to remember that not all brand name drugs have a generic counterpart. The real problem lies with expensive specialty drugs and biologics, where no generic is (or likely to become) available.
With RTBT tools available, even if no generic is available for a given brand drug, providers and patients can understand if there are lower cost therapeutic alternatives available that are on formulary. With more drug pricing (and alternatives) information widely available at the point of care, drug makers may feel more pressure of competition and reduce the prices of specialty drugs and biologics.
Providers are paying attention. “At health systems where RTBTs are turned on, we’ve seen reductions from a couple of dollars up to $500 for a single prescription. That is in addition to the reduction in prescribing friction and administrative work associated with coverage restrictions that might normally come up,” says Kiser.
There may also significant opportunity for savings for patients based on the patient’s choice of pharmacy. “Typically, we as patients have become accustomed to going to the pharmacy we’re most familiar with or that is the most convenient, but costs can vary significantly. RTBT helps to provide more insight into this variance and can help people save money,” explains Babbrah.
3) Fixing some of the 340B drug program disputes: The 340B drug-pricing program, which provides approximately $30 billion in drug discounts annually, is a critical lifeline for getting affordable, life-saving drugs to some of the most vulnerable populations. But the program has recently come under significant pressure because of compliance challenges. Disputes between drug manufacturers, payers (PBMs), contract pharmacies and 340B-eligible providers (covered entities) over duplicate rebates, long-standing poor business practices, and essentially zero trust between the groups have gotten so much attention that even Congress has demanded solutions.
Many of these issues revolve around a complete lack of transparency in data sharing between the parties. Concerns from all sides over abuse and other issues have created so much industry upheaval that some 340B drug manufacturers have threatened to pull out of the program entirely.
A big challenge is balancing conflicting interests between different sides: drug manufacturers want an easier discount verification process with transparent data, while providers want a more streamlined way to request the drug discounts they feel they deserve.
This specific problem is something that digital health platforms are well positioned to address, and one in particular is making progress. Chicago-based Kalderos is a drug-discount management platform that checks, identifies and resolves noncompliance issues using models and machine-learning processes that detect inconsistencies overlooked by existing methods. The Kalderos platform also facilitates quick and compliant payment (through a third-party payment partner) from manufacturers to covered entities so things are more transparent and run more efficiently.
Kalderos has worked closely with the federal government, specifically the Health Resources and Services Administration (HRSA), for nearly two years to demonstrate how its platform and model can improve transparency. HRSA, which oversees the 340B program, currently doesn’t hold a lot of enforcement power, and is eager to make sure that 340B drug manufacturers continue providing the discounts, making Kalderos a promising private-sector solution.
A Reason For Optimism
There have been many policy solutions aimed at making prescription drug prices more affordable. Yet one simple one, to ensure that providers and patients have accurate and up to date drug pricing and alternatives information when prescribing decisions are made, has often been overlooked.
With CMS’ impending January 1, 2021 timeline for adoption of RTBT, there is reason for enthusiasm. For the first time, Part D plan sponsors and PBMs will be required to share patient-specific drug pricing and alternatives information to providers and patients before a prescription is written. This seemingly simple act may be what is needed to provide a kickstart to help market forces start to reign in brand drug prices.
Providers increasingly have reason to pay attention as well. “As we move to value-based world, providers increasingly want to make sure their patients pick up and adhere to their medication therapy. Affordability is a huge part of this,” explains Babbrah.
Fortunately, digital health platforms like RxRevu are in a position to help connect PBMs and EHRs to reduce the technical burden, providing the infrastructure to ensure smooth market functioning.
While the seemingly simple act of using technology to connect different sides of an industry to share information may seem simple, the impact can be profound.
Jeremy Docken, CEO and cofounder of Kalderos, talks about the company’s role in helping to address challenges in the complex 340B drug discount program as a process in building relationships and trust. “You’re adding transparency so everybody can have trust in the system and each other,” says Docken.