Why High Drug Prices Are Not Like Cars' Sticker Prices : Shots - Health News The Trump administration compares drug list prices to car sticker prices. But drugmakers can price medicines as high as the market will bear. And consumers have little bargaining power.

How Does Drug Pricing Work? Hint: It's More Like Designer Handbags Than Cars

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ARI SHAPIRO, HOST:

President Trump has made lowering drug prices a cornerstone of his reelection bid, but politicians of either party who want to rally people around this issue have a challenge. Drug pricing is complex and convoluted. Just explaining what it is, let alone how to fix it, is hard. NPR's Selena Simmons-Duffin looks for a good analogy to help us understand.

SELENA SIMMONS-DUFFIN, BYLINE: My love for you is like drug list prices - sky high and arbitrary. No, OK, here's a favorite of Secretary of Health and Human Services Alex Azar. Drug List prices are like car sticker prices.

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ALEX AZAR: Since 1958, car companies have been required to post their sticker prices.

SIMMONS-DUFFIN: Azar is a former pharma executive and currently the man in charge of executing on Trump's proposals to lower drug prices. Here he is in a speech last year.

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AZAR: People still get discounts when they go to purchase a car, but sticker prices are considered an important piece of needed consumer information. There's no reason it should be any different for drugs.

STACIE DUSETZINA: This analogy doesn't really work if you start to think hard about the problem.

SIMMONS-DUFFIN: That Stacie Dusetzina of Vanderbilt University. I spoke to four drug pricing experts from all over the country, and nobody liked the car sticker price thing. For starters...

ERIN FOX: You're not going to die if you don't have a car, but you could probably die if you don't have your insulin.

SIMMONS-DUFFIN: That's Erin Fox, a pharmacist who studies drug shortages at University of Utah Health. Adrienne Faerber has a different problem with it. She's a lecturer at the Dartmouth Institute.

ADRIENNE FAERBER: When you go to buy a car, you're negotiating down the list price. But when you go to the pharmacy, you're not negotiating with the pharmacist for the cost of your drugs.

SIMMONS-DUFFIN: Then there's the markup.

ROBERT LASZEWSKI: When Chevy marks up the price of their car, maybe they're marking it up 10% or something like that.

SIMMONS-DUFFIN: Health policy consultant Robert Laszewski says if Chevy marked up their cars 400%, maybe it would be a good analogy. It's true that after drugmakers put money into developing, testing and actually making a drug, they can set the list price pretty much anywhere they want, whatever the market will bear.

FAERBER: The better analogy to think about - the pricing of drugs would be really expensive designer handbags.

SIMMONS-DUFFIN: Faerber says the materials don't cost much. It's about brand and design and potential scarcity. But this analogy misses all the other steps drugs go through before you get to the price you pay. There are pharmacy benefit managers, or PBMs, that haggle to reduce the price and take a cut. Insurers pay PDMs to negotiate for them. If you're insured, you pay a slice of that price at the pharmacy. Sometimes it's just a flat copay like $5. Erin Fox says sometimes it's a lot more.

FOX: If you have a high deductible plan, you're going to be faced with full list prices of medications until you hit your deductible.

SIMMONS-DUFFIN: Many of the experts I spoke to pointed out one of the most backward parts of this system is the people who could least afford it pay the most even if you have good generous insurance.

DUSETZINA: People tend to not really think about the premiums that they're paying for their insurance plan, which is really related to what you pay at the pharmacy counter.

SIMMONS-DUFFIN: Stacie Dusetzina says if you pay less for premiums each month, you might pay more at the pharmacy. So list price does matter to consumers. But you can't see what those prices are, and you can't negotiate a better deal.

DUSETZINA: Maybe it's a little bit more like your rich uncle buying you a car.

SIMMONS-DUFFIN: In this analogy, your rich uncle is the middlemen and insurers negotiating on your behalf.

DUSETZINA: They're doing the negotiations, but the ultimate price doesn't really matter to you because you're not paying for it directly. But maybe it comes out of your inheritance in the end.

SIMMONS-DUFFIN: Robert Laszewski says if that were the case, it would actually be like an uncle who negotiates a good price for himself and still makes you pay part of the sticker price.

LASZEWSKI: Not a very nice uncle.

SIMMONS-DUFFIN: So got anything better?

LASZEWSKI: I'm hard pressed to find anything in the American marketplace that comes close to this bizarre pricing system.

SIMMONS-DUFFIN: Not a handbag, not a car, just a weird, convoluted system that governs how Americans get their prescription drugs. So maybe my love for you is like drug list prices - inexplicable. Selena Simmons-Duffin, NPR News.

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