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Correcting the record: Putting medicine costs and spending in context

Nicole Longo
Nicole Longo March 24, 2022

Correcting the record: Putting medicine costs and spending in context.

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Last week, the Senate Finance Committee held a hearing focused on drug prices where the discussion was filled with misleading claims. We agree too many Americans struggle to afford their medicines, but we must take a holistic approach to addressing the problem. Focusing solely on drug prices and relying on misleading claims will not fix the affordability challenges patients worry about most.

Fact: Medicines are not a driver of inflation. Data from the Bureau of Labor Statistics (BLS) show that prices for prescription medicines are growing significantly more slowly than overall inflation (1.3% vs. 7.5%). Data from IQVIA confirms this is a trend, showing that brand medicine prices have grown in line with or below the rate of inflation for the past five years.

Fact: Net prices for brand medicines declined 2.9%, on average, in 2020. The BLS data reflect undiscounted prices, not the amount manufacturers ultimately receive on the sale of medicines (the net price), which declined for brand products in 2020. Despite this, many continue to focus on the list prices of medicines, failing to account for the rebates, discounts and other payments manufacturers provide to health insurers, PBMs and other stakeholders. Rebates, discounts and other payments made by brand manufacturers has tripled since 2012, reaching $236 billion in 2021. Unfortunately, these discounts are not being shared with patients at the pharmacy. In fact, too often patients are forced by their insurers to pay cost sharing that is calculated based off the list price of the medicine, not the discounted price the insurer paid. This tactic by insurers is largely unique to medicines as cost sharing for other covered services, like hospital stays and provider visits, is generally calculated based on the net price, not the list price. This is not fair to patients and needs to be fixed.

Fact: Comparing medicine prices between the United States and other countries is misleading. Comparing prices in the United States to other countries is like comparing apples to oranges, because doing so compares undiscounted U.S. list prices to artificially low prices set by foreign governments. This flawed logic ignores the rebates, discounts and savings manufacturers provide that result in a declining net price for medicines. Additionally, more than 90% of all medicines dispensed in the United States are lower-cost generic medicines. Not only does that exceed the amount dispensed in other developed countries, but also generics are less expensive, on average, in the United States than in other developed countries. Further, in countries where the government sets medicine prices, patients often face restrictions in access to new treatments. For example, nearly 90% of new medicines launched since 2011 are available in the United States compared to just 48% in France and 60% in the United Kingdom. 

Fact: Collaboration between industry and the NIH is key to bringing medicines to market. Despite what some people claim, the NIH, with a different inherent mission, alone could not conduct the same amount of R&D as private sector industry. In 2018, the biopharmaceutical industry invested $102 billion in R&D, 100% of which was focused on drug development. Meanwhile, the entire NIH budget in 2018 was $35.4 billion, only 8% of which was focused directly on research related to drug development. As a recent Congressional Budget Office report found, public-sector research and private R&D “are complements, not substitutes,” as each member of the biopharmaceutical ecosystem plays a vital role.

In a letter to a handful of senators earlier this month, we provided further context around drug pricing as part of our effort to help ensure any discussion is based on facts and focused on changes that will help lower out-of-pocket costs for patients. Read that letter here.

Topics: Drug Cost, Out-of-Pocket Costs