Bloomberg: The Crazy Math Behind Drug Prices

By: Paul Barrett and Robert Langreth

David Hernandez, a 44-year-old restaurant worker and Type 1 diabetic, didn’t have insurance from 2011 through 2014 and often couldn’t afford insulin—a workhorse drug whose list price has risen more than 270 percent over the past decade. As a result of his skimping on dosages, Hernandez in 2011 suffered permanent blindness in his left eye, and three years later he experienced kidney failure. He’s since received a lifesaving kidney transplant covered by Medicare and has drug coverage under a New Jersey program for the disabled. But Hernandez’s eligibility expires next January, at which time he’ll have to pay about $300 a month out of pocket for insulin. “I don’t really have that kind of money,” he says.

That Hernandez is struggling to deal with big price hikes for insulin, a century-old medicine that for most of its history cost $15 a month or less, speaks volumes about America’s failing battle to control drug prices. Key combatants are the secretive drug industry middlemen called pharmacy benefit managers (PBMs), who are hired by insurers, employers, and unions to negotiate discounts from drugmakers. Hernandez is a plaintiff in a lawsuit seeking to prove that dealings between those middlemen and drug companies instead have contributed to the cost of insulin rising, in part to make sure fees to the middlemen keep going up. The same interaction inflates the prices of dozens of name-brand drugs, says Steven Berman, the Seattle-based plaintiffs’ attorney who filed the suit in February in federal court in Trenton, N.J. “It’s perverse,” he says, “but that’s the way it works.”

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