Apparent drug pricing loophole

Bloomberg published a fascinating piece that details why some pharmaceutical companies seem eager to offset patient costs through certain charities. The basic idea outlined in the article is that drug companies may raise prices aggressively, but that could deter patients from using the drug because the co-payment would be too high. Drug manufacturers are prohibited by law from directly offsetting the patient co-payment if the patient is on Medicare; instead, companies can achieve the same effect by contributing to independent charities that offsets patient co-payments. In practice, these charities will set up disease-specific funds that companies can donate to, and the charities appear to prioritize paying the co-payments of drugs that the donor companies sell. The donor companies themselves then benefit because Medicare end up paying the rest of the much higher prices that the donor companies recently set.

This loophole seems very much related to the third-party payer problem: when the decision-maker is not the one bearing the financial implications of the choice, cost tends not to be considered. There still remains a very valid question of what should happen when a drug company raise prices such that a life-saving drug is financially out-of-reach for many patients.