Is drug competition bad for patients?

In general, you would think the answer is no. If there are multiple treatments available, patients have more choice. Further, the treatments may need to compete with one another which may lead to lower prices.

One issue with drug prices is that the the list (a.k.a. gross) price affects patient cost-sharing, but the net price is what your health insurer pays. Does this distinction make a difference? According to a paper in JAMA Network Open by Lakdawalla and Li, however, it does. Examining 3322 unique National Drug Codes (NDCs), the authors use data from the Brand Rx net pricing tool from SSR Health. SSR Health estimates sales and rebates from financial reports and product-level units sold to US end users from Symphony Health claims data. Using these data, the authors find that:

The ratio of rebate to net prices was higher and increased faster for drugs with branded and generic competitors (from 83% to 172%) than for drugs with only branded competitors (from 61% to 115%) and those without generic equivalents (from 33% to 49%). Hypothetical patients paying standard Part D coinsurance on drug list prices would have experienced an effective out-of-pocket share increase from 48% to 64% in the initial coverage phase, and from 10% to 13% in the catastrophic coverage phase between 2014 and 2018. In the coverage gap, the share increased from 92% in 2014 to 98% in 2016 and then decreased to 90% in 2018. Compared with drugs with no competition, effective out-of-pocket share paid by patients grew 50% faster for drugs with branded competitors and 100% faster for those with branded and generic competitors.

On the one hand, it seems like this is one case where–due to the rebate system–more competition may actually be hurting patients. On the other hand, rebates do flow back to patients in the form of lower premiums. However, this means that sicker patients with high drug costs are disproportionately hurt by the rebates. The authors do propose a solution to this issue:

Starting in 2019, some insurers began to offer their commercial customers the option to include point-of-sale rebate pass-through with their plans. If taken up, these options would pass the rebate payment through to the consumer at the point of sale. The pass-through would reduce the consumer’s out-of-pocket obligation by ensuring that coinsurance applies only to the net price. Prior research estimated that basing cost sharing on net price, or full pass-through of rebate at point of sale, would reduce out-of-pocket spending for nearly half of Part D beneficiaries who do not receive low-income subsidies

Source:

• Lakdawalla D, Li M. Association of Drug Rebates and Competition With Out-of-Pocket Coinsurance in Medicare Part D, 2014 to 2018. JAMA Network Open. 2021 May 3;4(5):e219030-.

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