March 04,2020

ICYMI: Drug Prices Rose Three Times Faster Than Inflation Over The Past Decade, Despite Discounts

NOTE: The bipartisan Grassley-Wyden Prescription Drug Pricing Reduction Act (PDPRA) would protect taxpayers from being put on the hook for unlimited Big Pharma price hikes that have no basis in a functioning free market. Without reforms, big pharmaceutical companies would continue to receive tens of billions of dollars in taxpayer subsidies and would have no incentive to keep prices from rising faster than inflation. Currently, prescription drug manufacturers can charge Medicare more and more every year – and taxpayers are forced to foot the bill. The PDPRA enacts accountability and ends corporate welfare without harming medical innovation.

By Ed Silverman
March 3, 2020
Amid intensifying anger over the rising cost of medicines, a key piece of data has been missing from the debate — the actual prices after accounting for rebates and discounts offered by drug makers to payers. Now, a new analysis has come up with some numbers and the results are illuminating: Over a recent 11-year period, net prices for hundreds of drugs rose 60%, which was 3.5 times the inflation rate.
Here are the numbers: From 2007 to 2018, list prices on 602 medicines rose by 159%, or 9% per year. However, after accounting for rebates and discounts, net prices for the same drugs increased by 60%, or 4.5% per year. Overall, discounts offset an estimated 62% of list price increases, although this varied substantially among different types of drugs.
The findings are akin to pulling the curtain back on an argument the pharmaceutical industry has long used to deflect criticism over its pricing. Drug makers insist that citing any increases in list — or wholesale — prices is incomplete, if not inaccurate, because these prices do not reflect rebates and discounts paid to pharmacy benefit managers to win favorable placement on insurance formularies.
Drilling down, the analysis found the greatest increases in both list and net prices were seen in multiple sclerosis treatments, 439% and 157%, respectively. For cholesterol medicines, list prices rose 278% and net prices jumped 95%. List prices for medicines used to treat rheumatoid arthritis, such as Remicade, rose 166% and net prices increased by 73%.
Meanwhile, chemotherapy drugs experienced list prices rising 59%, which were lowest among the different therapeutic classes, but discounts offset 41% of those increases, leading to 35% gains in net prices. List prices for diabetes drugs rose 165%, while net prices decreased by 1%. As for insulin — a flashpoint in the debate — list prices jumped 262% and net prices climbed by 51%.
“Insulin is the poster child for what’s happening in these widening gaps between net and list prices,” said Hernandez. “In 2014, net prices for insulin began decreasing, but list prices continued to rise. This shows us there’s been a big disconnect between list and net prices.”

The study, by the way, also found that discounts were much larger for Medicaid than for other payers, which likely reflected regulation, including a mandatory Medicaid rebate based on price increases over inflation. Specifically, discounts increased from 40% to 76% in Medicaid and from 23% to 51% for other payers, notably commercial payers that are able to negotiate prices.