Let’s Talk About Reality
It’s easy to take aim at the list price of a drug. However, the list price is not what a manufacturer generally makes on the drug or what a patient pays for his or her medicine. To help explain how this process works, we created a video called Understanding Your Drug Costs: Follow the Pill.
The process is complex, so this video, which begins with a typical transaction at a local pharmacy, then traces that purchase back through a series of transactions that occur throughout the pharmaceutical distribution and insurance chain. Despite misleading rhetoric from the insurance industry, a biopharmaceutical company has very little power to determine what a patient ultimately pays for his or her medicine.
Actually, Prescription Drug Costs Are Headed in the Right Direction
As we’ve stated before, the latest numbers show that prescription drug prices are growing quite modestly – and even falling on a net basis for some payers.
- For starters, CMS announced in December that national spending on retail drugs increased by only 1.3% in 2016 – that’s well below the growth in spending on hospital services (4.7%), physician and clinical services (5.4%), and overall health care (4.3%).
- CMS also reports that over the next five years, the projected increase in hospital spending alone will be greater than the total amount spent on prescription drugs in 2016.
- What’s more, the Altarum Institute reports drug prices over the last year increased by only 2% — before factoring in manufacturers rebates and discounts.
- And as our new infographic shows, for every dollar spent on health care in the U.S., just 14 cents is spent on prescription drugs.
- Finally, new data from CVS shows that price growth for their consumers was nearly flat in 2017. And Prime Therapeutics — a pharmacy benefits manager owned by Blue Cross Blue Shield plans— shows negative growth in net prices for drugs for both government and private payers for 2017.
Setting the Record Straight
When talking about drug costs, insurers rarely consider the larger biomedical innovation ecosystem where 90 percent of drug development programs fail – and where a staggering 90 percent of biopharmaceutical companies are unprofitable. That’s why revenues from the few successes are so important and needed to fund future research and development programs for patients in need.
Bringing life-saving treatments and cures to the market comes with a cost, but it’s important to think about how these medicines are helping to contain spending in other, more expensive areas of our health care system. For example, a study published in Health Affairs shows that for patients with congestive heart failure who took their medicines as directed by their physicians, the benefit-to-cost ratio was 8 to 1. In layman’s terms, for every $1 they spent on medicine, these folks SAVED eight times that much in reduced costs in other parts of the health care system. Similarly, the same study finds that for diabetes patients, the benefit-cost ratio was 6:1 – spend a dollar, save six. By reducing the need for pricey medical procedures, hospital stays and doctor visits, these medicines are savings lives and health care dollars.
Insurers Are Quick to Point Fingers… But Not So Fast
Ensuring patients have access to the medicines they need is good for the individual and for our broader health care system. But guess what? Insurance practices that discriminate against those with particularly costly pre-existing conditions often hinder patients from receiving the care they need. Real solutions should focus on containing the real drivers of rising health care costs – costly hospital stays and doctor visits.
Pass Along to the Savings to Patients
UnitedHealthcare and Aetna are to be commended for their recent decisions to pass on rebates and savings offered by pharmaceutical companies to help consumers afford the medicines they need. But what does the rest of the insurance industry do with the billions in savings we rebate back each year? As Consumers Union has warned, concerns continue to grow over the insurer’s excess surplus, which may mean it’s overcharging its beneficiaries. Hopefully other insurers will follow the examples set by United and Aetna – after all, hardworking Americans are counting on them.