Health Care, Manufacturing, and Nonprofits

Report finds slow growth in drug costs

Robust negotiations result in high rebates for insurance groups.

October 6, 2017
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Negotiations between biopharmaceutical companies and insurers are resulting in slower growth in the cost of prescription drugs, but patients still may end up paying more for their prescriptions.

According to a report published by Pharmaceutical Researchers and Manufacturers of America (PhRMA), a national advocacy group made up of professionals in the pharmaceutical industry, the growth of prescription drug costs has slowed significantly since 2015.

The report found medicine cost growth had declined from about 5 percent in 2015 to an average 3.5 percent in 2016. The reason for the slowdown was attributed to more competition in the pharmaceutical manufacturing industry, along with increased rebates and discounts.

Even though the growth of drug costs has slowed, it may not feel that way for the patients who pay for their medicine out of pocket.

According to the PhRMA report, while biopharmaceutical companies set the list price for brand medicine, more than one-third is rebated back to insurers, pharmacy benefit managers and other middlemen in the supply chain before the medicine reaches the patient’s hands. Ultimately, how much patients pay for their drugs depends on what their insurers negotiated.

“If you have knee surgery, your copay is based on the amount the insurer paid. The hospital charges a certain amount, and the insurer negotiated it down,” said Caitlin Carroll, PhRMA director for public affairs.

But the same rules don’t apply for prescription medication, which accounts for 14 percent of health care spending in the U.S.

“About one out of five times people pay for their medicine, they are paying the list price, not what their insurers pay,” Carroll said.  “Their insurer is calculating how much (patients) owe based on the list price.”

Carroll added, since 2010, high deductible insurance plans have increased, and more plans are including prescription drugs in their coverage. But 49 percent of high deductible plans still require patients to pay for medicine out of pocket.

Stephen Rapundalo, president and CEO of MichBio, a statewide bioscience industry organization, said all pharmaceutical manufacturers have some type of program in place to help reduce the cost of medicines but patients also should consider the cost of developing more advanced pharmaceuticals.

The market price of a certain drug is largely governed by innovation in disease treatment. In the past, prescription drugs were made from chemical compounds. Today, most drugs produced by pharmaceutical companies are made from biological compounds, which makes them generally more effective at treating illnesses but significantly more costly to produce.

“The costs of research and development are inordinate,” Rapundalo said. “We have all this innovation going on, but it costs money.”

PhRMA advocates for public policy aimed at bridging the gap between innovation and accessibility in medicine. Recently, the group launched a campaign, called Share the Savings, aimed at reducing patients’ costs by providing access to discounted prices at the point of sale.

“We felt it was important because our industry has had some bad headlines,” Carroll said. “I think the important conversation about costs is balancing the innovation with the need for patient access and affordability.”

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