Blue Cross Partnership Shows Promise in Driving Down Drug Prices

February 6, 2020

Recently, the Blue Cross Blue Shield Association and 18 of its member organizations—which collectively insure 40 million people—have pledged to invest $55 million to develop cheaper versions of expensive pharmaceutical drugs. This investment is part of a larger partnership with Civica Rx, a non-profit organization which currently manufactures generic drugs in order to make them more affordable and accessible. Both groups have predicted that initial products will become available in early 2022.

Civica was founded in 2018 by a group of charitable foundations and hospital systems to address shortages of many life-saving drugs. Under this new plan, Civica will either create a subsidiary to manufacture the drugs independently or it will contract with existing manufacturers. Civica hopes that the commitment of major insurers will influence independent drug companies to work with them in the future.

This partnership between Civica and Blue Cross Blue Shield represents an effort to combat the price-fixing schemes of major generic manufacturers in the United States. In the US, the lack of regulation among pharmaceutical companies gives them an enormous amount of pricing power, through which they can steadily increase the cost of drugs far beyond inflation rates in order to continuously generate revenue—even if the demand for a particular drug is not high.

This ability to artificially maintain high prices for a large number of generic drugs often creates the appearance of a higher level of competition than what actually exists. As a result, many Americans face a significant financial burden when purchasing essential medications, which further widens the disparity in the accessibility of modern medical innovations like pharmaceuticals.

While generic drugs are traditionally cheaper than their brand-name counterparts with patent protection and fewer competitors, in recent years, entrepreneurs have formulated a business strategy that entails purchasing old, off-patent drugs and raising the prices while marketing them as “specialty drugs.”

In August of 2015, Turing Pharmaceuticals acquired the drug Daraprim, which is 62-years-old and critical to the treatment of a potentially fatal disease called toxoplasmosis, the result of a parasitic infection. Overnight, Turing raised the price per tablet from $13.50 to $750, resulting in a drastic increase of treatment costs for those patients affected. In 2016, the drug company Mylan, which produces EpiPens, was forced to release a cheaper, generic model for consumers in response to backlash they faced after the public learned the cost of EpiPens had been steadily increasing over time (while the drug's production cost remained the same).

Price-fixing schemes such as this have generated public outcry and a wave of criticism aimed at pharmaceutical manufacturers for establishing exorbitant prices of live-saving drugs. This unrest served as the main motivating factor for Dan Liljenquist, the chairman of Civica’s board, to work towards stabilizing the prices of these pharmaceuticals. While in a recent statement he admitted that this movement “will not solve all the problems of the world,” he asserts that greater transparency and stability in prices will make generic drugs available to wider groups while still allowing for competitive markets.

This agreement represents a notable power shift within the pharmaceutical industry. However, the broader issue of how to reward drug companies for their life-saving products while ensuring that their prices do not pose a significant burden to patients is not completely solved; this will continue to remain a contested topic of debate within our financially-strained healthcare system.