What They Aren’t Telling You About Medicine Prices

Holly Campbell
Holly Campbell May 6, 2015

What They Aren’t Telling You About Medicine Prices.

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Recent cries from Bloomberg and The New York Times of “skyrocketing” medicine prices make for great headlines. 

PhRMA image: costs-in-perspectiveBut what’s not being talked about is that these claims are based solely on the list prices of medicines which do not reflect the substantial – and typical – discounts negotiated by insurers and pharmacy benefit managers. Nor do the headlines mention that spending on medicines consistently accounts for just 10 percent of U.S. health care spending – the same percentage as in 1960. 

Conversations on costs and so-called “transparency” bills need to move beyond hyperbole and provocative headlines to examine the impact of our nation’s competitive biopharmaceutical marketplace. America’s market-based system works to control costs; proposals intending to increase transparency would not only inaccurately portray the cost of developing new treatments, but fail to provide patients with additional information about their own out-of-pocket costs for medicines. 

Any honest dialogue on costs needs to take into account the following facts: 

  1. Official government estimates show the cost of medicines will rise at about the same rate as overall health care spending through the next decade.  According to Avalere, brand name medicines will represent about 9 percent of spending across all federal health care programs through the next decade.  As in the past, hospital spending, not prescription drug spending is expected to be the primary source of growth. 
  2. The average list price of a medicine typically does not reflect substantial discounts negotiated by insurers. Focusing on list prices for a small group of cherry-picked medicines results in a misleading impression about the overall spending on medicines trend. Medicines are purchased in a uniquely competitive market, where concentrated purchasers use more aggressive cost containment tools than for other parts of the U.S. health care system. 
  3. Competition among brand-name medicines helps to control costs even before the introduction of lower-cost generics. Companies developing medicines race to be first to the market. It is a race because – in most cases – medicines from competitors are already in development. As we saw with recent activity in the hepatitis C market, this race can close quickly. In fact, on average, there is competition on price and clinical effects from other medicines in less than two years. Once the IP protection ends, brand medicines then face additional competition from lower-cost generics and soon from bioisimilar medicines. According to IMS Institute for Healthcare Informatics, $27 billion of small molecule medicines face loss of exclusivity in 2015. 
  4. Significant rebates are negotiated in Medicare Part D. The Medicare Trustees report “many brand-name prescription drugs carry substantial rebates, often as much as 20-30 percent.” In fact, actual rebates have exceeded the Trustees’ projected levels for each year of the program. 
  5. The Medicare Part D coverage gap will go away completely by 2020. It is disingenuous to mention the Medicare Part D coverage gap without acknowledging that it is going away. Since 2010 when discounts began, 9.4 million Medicare beneficiaries have saved over $15 billion – an average of $1598 per beneficiary – on prescription drugs as a result of coverage gap discounts. 

Get PhRMA updates on cost of medicines and related issues here. Get Updates

Topics: Drug Cost, Health Insurance, Part D, Pharmacy Benefit Managers