The Pharmaceutical Research and Manufacturers of America (PhRMA) recently published a new page on their website covering the Cost and Value of Medicines. PhRMA notes that while changes might be necessary for our health care system to help lower cots for patients and address misaligned incentives, policy makers need to take a holistic approach to the conversation, not target just one aspect such as prescription medicines.
As PhRMA notes, by focusing only on prescription medicines, policy makers tend to ignore other parts of the supply chain that also impact health care spending in the United States.
Spend on Medicines is Stable
According to a July 2022 report by Altarum, retail and non-retail prescription drug spending represented only 13.7% of total health care spending and is expected to remain at that level for the next decade, peaking in 2024 at 14.5% before dropping to 13.6% by 2030. Additionally, inflation data from the Bureau of Labor Statistics shows that overall medicine prices grew less than 3% in the last year (as of March 2023).
A report by Iqvia shows that net prices of brand medicines (after accounting for rebates, discounts, and other payments) grew by only 1% in 2021 and was on average, below or in line with the rate of inflation for the fifth year in a row.
However, for all of that positive news, it does not always translate to lower costs for patients. In fact, a Milliman report found that when it comes to insulin, rebates, discounts, and other manufacturer payments lower the cost of commonly-used insulins by an average of 84% but insurers do not often share those savings with patients at the pharmacy county. Instead, patients can wind up paying more for their insulin than their insurance company and pharmacy benefit manager (PBM).
Insurers and PBMs are Driving Up Patient Costs
Along those lines, a Berkeley Research Group publication found that more than half of every dollar spent on brand medicines went to entities that did not research or develop the medicine, such as PBMs and payers.
As shown in the graphic above, other stakeholders are now retaining a greater percentage of total gross expenditures for brand medicines than the manufacturer, as of 2020. The graphic shows the decline of the manufacturer retained expenditures when compared to the steady incline of the other stakeholder retained portion.
Three PBMs currently control more than three-fourths of the market and use their market share to increase profits. However, instead of using those profits to improve insurance coverage for patients in need, some PBMs and insurers shift the costs back to the patients via high deductibles and coinsurance, or outright exclude coverage of certain drugs and biosimilars that could ultimately lead to lower costs for patients.
Hospitals Are the Primary Driver of Health Care Spending
Finally, from 2016 to 2021, hospital spending increased 4.5 times more than retail prescription drug spend. Not only that, but from 2015 to 2020, the share of total hospital spending attributable to medicines decreased from 3.7% to 3.1%.
According to data from Peterson Center on Healthcare and the Kaiser Family Foundation as well as the Centers for Medicare and Medicaid Services (CMS), hospitals account for 31% of every dollar spent in health care in the United States and hospital spending is expected to increase by about 5% each year through at least 2030.
In another research brief from 2017, PhRMA notes that hospitals typically mark the prices of prescription drugs up, on average, by almost 500%. A more recent analysis from AHIP found that costs for certain medicines were more than $8,000 more, on average, when administered in a hospital when compared to distributed through a specialty pharmacy between 2019 and 2021.