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Making prescription costs a less bitter pill to swallow

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Bitter pill: work is under way to find ways to reduce the costs of medication. (File picture)

Latest retail figures show residents are cutting back on spending. But there is one household expenditure where corners can’t be cut — our health. Gareth Finighan examines why the price of medications in Bermuda is so high — and what the Government is doing to put a lid on further rises.

It’s something that none of us can do without, but some of us can ill afford.

A visit to the doctor for a minor ailment can snowball into huge health bills, a hospital stay — sometimes overseas — and weekly visits to the pharmacy for the rest of our lives.

And while insurance companies do their best to buffer the pain of those costs, they can still hurt the consumer at the register.

George Grundmuller, the chief executive and president of Phoenix Stores (File photograph)

According to George Grundmuller, the president and chief executive of the Phoenix chain of pharmacy stores, the reason for the high cost of prescription medicines in Bermuda is complex, but eventually boils down to one simple factor — economies of scale.

Mr Grundmuller, who is also the head of the Pharmacy Owners Association, said: “The US market is dominated by a couple of big chains — Walgreens, followed by CPS, and the likes of Walmart and Target.

“They can sign contracts with manufacturers that are in the hundreds of millions of dollars, while we’d be happy to have volumes of $10,000 or $15,000. So the US companies can get medicines a lot cheaper at source, be it from the manufacturer or wholesaler, because they’re buying in bulk.

“To the manufacturer, Bermuda is a small market.”

There are other costs brought about by Bermuda’s geographic isolation — freight, customs clearance, storage — all of which have to be paid out by the pharmacy before those drugs land on the shelf.

Once here, there are additional expenses. The price of doing business alone is enough to see prices soar way beyond those in the US, Canada and Britain.

In addition, island pharmacies have to keep a ready supply of all drugs in stock — something overseas competitors do not have to do.

Mr Grundmuller explained: “We have to have all types of drugs here — even ones that are not frequently prescribed — because, once your doctor prescribes it, you are going to want it immediately.

“In the US, pharmacies can order a drug from a wholesaler in the morning and get it by noon, so they don’t have to hold it themselves.

“In Bermuda we can’t do that. It would take too long to order a drug from overseas, have it shipped in, get it passed through customs … it would take too long when customers need their medication that day.”

With mounting costs, and with local suppliers facing an uphill battle on an uneven playing field, it is perhaps no surprise that the Government has stepped in to assist.

Kim Wilson, the Minister of Health (File photograph by Akil Simmons)

In 2021, the Bermuda Health Council, a government quango, was given the authority to obtain data from all 22 pharmacies on the island, assess that data and find ways of bringing prescription drugs into the island more cheaply than private companies are able to do so going it alone.

Kim Wilson, the Minister of Health, steered those changes through the House of Assembly two years ago.

It’s an issue the minister clearly feels passionate about. In an interview with The Royal Gazette, she said: “This is a really important initiative. On the doorstep we heard the cry from individuals with respect to the cost of paying for medication and the like.

“To that end, the Government increased drug benefit payments for seniors on FutureCare from $2,000 to $3,000. Those on HIP, who did not have a prescription drug benefit, were given a $1,000 allowance.

“Subsequent to that, in our Throne Speech we also indicated that we would establish a national drug formulary.”

That formulary will put certain drugs — those most commonly used to treat the most common, chronic conditions, such as diabetes and obesity — under the authority of a BHC committee tasked with negotiating the best prices with suppliers, as well as policing local island outlets to ensure they don’t sell drugs at levels beyond set prices.

That work is under way. More than 90 per cent of island pharmacies have submitted data to the Government’s number crunchers, who are now assessing ways those numbers can be reduced.

Ms Wilson insisted that the Government was not on a path to enforce price controls on private businesses that are typically used to working in the free market. Rather, the BHeC will collaborate with island pharmacies and wholesalers in order to strike a better deal with outside manufacturers for the benefit of islanders.

How will that work? By teaming up and joining forces — something that pharmacists have never done in the past. Mr Grundmuller acknowledged that there is no exchange of information when it comes to talking with competitors — and that mindset may have to change.

Ms Wilson said: “One aspect that certainly is worth exploring is the fact that we can pool our resources because there’s volume in numbers.

“It may be a situation where Drug A is used by 30 per cent of the population — there’s economies of scale when you purchase them in bulk so that’s something that can be looked at. If we pool the medicines, the procurement process may be the more sensible option for Bermuda and for particular dugs to be purchased at a lower rate.

“What we’ll be looking at — right now the price controls, price settings are all set privately by the various pharmaceutical companies or the importers. There’s no government control or intervention.

“What will happen is this committee will, once they’ve collected data, ascertain which drugs are going to be placed on the formulary and those particular drugs — the ones that have high instances of use here because of diabetes, obesity — those ones are the ones that will be placed on the drug formulary so that we can control the cost.”

How the numbers add up

According to latest figures, Bermudians spent $44.5 million on drugs in 2018 — about $680 per person.

That figure is high. In the US — a nation of pill poppers — the national average is in excess of $1,000 per person. But in Britain that figure stands at $270, while the average for Western nations is about $466.

George Grundmuller, the president and CEO of the Phoenix chain of pharmacy stores, provided The Royal Gazette with an analysis of the numbers.

He said: “Total cost of prescriptions has only increased by $5,043,000 between 2004 and 2017. This represents 1.5 per cent of the total $344.6 million increase during the same period and is below the cost of inflation.

“Three of the top four drivers of increased health costs over the 13 years are BHB — $188.6 million — overseas care at $44.9 million and health insurance administration at $37.3 million. These are interlinked and account for 79 per cent of the health cost increase.

“It is our contention that the pharmacies have managed their operations effectively and efficiently during this period and the data supports this. Health expenditure for prescription drugs has declined from 9 per cent to 5.7 per cent of total health costs while administration and the hospital expenditures saw huge increases.

“We believe the way forward is to focus even more on generic drugs. Millions of dollars could be saved if we get to a ratio of 90 per cent of generic drugs verses branded drugs as this is the case in other countries.

“To achieve this, the mindset of the patient and the prescribing habits of doctors need to change. While the recent legislation change has helped, too many patients are still asking for the branded product.”

Pharmacists are on board. Why? Because while price controls imposed by a government may be anathema to free market economics, pharmacies in Bermuda make no profit from the prescription drugs that they sell — the price you pay at the till is exactly what it costs for pharmacies to ship it in, save for a prescription fee to cover overheads.

Mr Grundmuller said: “Other pharmacies are paying but with everyone sharing that information with the Government that is a good step to analyse where we are. But essentially when it comes to pricing, quantities with the manufacturer are the key.

“As it is, right now pharmacies dispense at the price it costs to bring in the product. We do not mark up the product.

“So whatever we pay for it — if I buy it locally from a wholesaler or overseas from a manufacturer — the only thing is added on is the prescription fee which is essentially there to reimburse the pharmacist and prescription fees, higher in Bermuda than they are in the US because the cost of business is higher.“

There are other areas where savings can be made, and again the Government and pharmacies are singing from the same hymn sheet.

While brand name drugs may be more popular with the consumer, they don’t always deliver a better result, despite the heftier price tag.

Mr Grundmuller said: “Too many patients are still asking for the branded product.

“There are some exceptions where branded drugs are actually cheaper than their generic equivalent or where it is not advisable for generics and brands to be interchanged as they are not therapeutically equivalent.

“We believe the way forward is to focus even more on generic drugs. Millions of dollars could be saved if we get to a ratio of 90/10 for generic drugs against branded drugs as is the case in other countries. To achieve this, the mindset of the patient and the prescribing habits of doctors need to change.

“The mandate or insurance policy will need to take these exceptions into account within the objective of supplying the lowest-cost acceptable medicine. As you can imagine this is a complicated task, but Bermuda’s pharmacies are committed to doing their part in containing healthcare costs.”

Ms Wilson agreed. “I think part of that exercise requires education,” she said.

“As the health council has stated previously, the reality is that there are generic drugs that are on the market that are as effective as the brand name ones that we’ve all become accustomed to knowing.

“Oftentimes — not always — the generic is far more economical. It certainly is an education exercise. We have to educate people so that they can recognise the efficacy of each drug. It is often less expensive than the name brand and you’re paying for the name.

“What we don’t want is a situation where people can’t afford to get the certain types of medicines that are required to cure them or make them better.

“I think that this particular initiative will go a long way in trying to establish a fair and equitable pricing regime for certain drugs that are commonly used in Bermuda for certain chronic conditions.

The last word belongs to Mr Grundmuller.

“Hopefully there are ways to reduce the cost of medicines. It’s a question of collaboration, of working together — everyone — for the benefit of all.”

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Published January 31, 2023 at 7:45 am (Updated February 05, 2023 at 7:26 pm)

Making prescription costs a less bitter pill to swallow

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