Good news for the health insurance industry: business is booming – insurer stock prices soared in 2017 well above the rest of the stock market. While patients and consumers in a staggering number of counties across the country are suffering from a lack of competition and choice in the health insurance markets, insurance companies appear to be doing better than ever.
Here’s the bad news: health care premiums are on the rise and show no signs of slowing down. And in a recent opinion featured in The Hill, America’s Health Insurance Plans (AHIP) and the American Hospital Association (AHA) – the industry trade groups for the insurers and hospitals, respectively – once again place the blame on the pharmaceutical industry for these substantial increases. This is becoming something of an annual tradition, but just as before, here’s how their claims stack up:
Prescription drug costs are not “out-of-control,” but stable and heading in the right direction. We will let the numbers speak for themselves.
- The Centers for Medicare and Medicaid Services (CMS) announced in early December that national spending on retail drugs increased by only 1.3% in 2016, well below spending on hospitals (4.7 percent), physicians and clinical services (5.4 percent) and private health insurance (5.1 percent).
- What’s more, roughly 14% of all health care dollars go toward prescription drugs, which is similar to other developed countries like Germany (13%), France (13%) and Canada (14%).
- And as the Altarum Institute reports, drug prices increased by only 1% over the last year — and that’s before factoring in manufacturers rebates and discounts.
- Finally, it’s important to mention that data from 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.
Innovation is risky, time consuming, and expensive – an important point we’ve made before that continues to hold true. Even with more than 90 percent of drug companies reporting to be unprofitable, the biopharmaceutical industry ranks 36th (out of 126 industries) in terms of aggregate profitability—behind sectors such as food retail, auto parts, and apparel/footwear —yet we continue to drive the profits we make back into the important research and development process. In fact, the biopharmaceutical industry has the highest percentage of R&D reinvestment of any U.S. industry.
Insurers decide how much patients will pay for a drug, not manufacturers. Today, much of the public debate surrounding the cost of medicines and cures is focused on the list price of an individual drug or treatment regimen. But that ignores the fact that drug manufacturers annually provide billions of dollars in rebates and discounts. In fact, IMS Quintiles estimates that discounts, rebates and other concessions reduced list prices on branded drugs by approximately $127 billion. These reimbursements come in addition to offering direct financial assistance to patients to help cover their out of pocket costs not covered by their insurers – a story line rarely covered by the mainstream media. These rebates are often as much as a third of a drug’s list price, if not higher.
If AHIP and the AHA are so concerned about patient access, perhaps they should take a close look at some of their own business practices. As we have mentioned before, while net price and overall spending growth for drugs continue to level, insurers are under pressure for the role they play in driving up patient out-of-pocket costs for medicines. For example, lawsuits against UnitedHealth and Cigna allege that their prescription benefit design can require that patients pay co-pays for more than the actual cost of the drug – with the insurer pocketing the difference. Insurers have faced criticism for discriminatory formulary design, particularly against patients with high-cost health conditions such as HIV and Hepatitis C.
Furthermore, even going by the insurers’ own data, three-quarters of the growth in insurance premiums is directly driven by doctors and hospitals —not prescription drugs. Don’t believe us? Look no further than their blog. As AHIP writes time and time again:
“When providers consolidate and gain more market power, they have an incentive to demand higher prices, which in turn makes premiums and costs for patients even higher.”
It’s also important to point out AHIP’s recent analysis on the reasoning behind the outrageous variation in hospital prices – an issue that directly impacts our nation’s most vulnerable patients:
“Large, consolidated hospital systems have stronger market power to drive up prices, giving them the ability to negotiate prices that are significantly higher than what Medicare pays for the same exact services. The result is higher health costs and increased premiums.”
We agree: market-based solutions are needed to make health care work. That’s why we’ve teamed up with the Council for Affordable Health Coverage – a group of pharmacy benefit managers, drug manufacturers, insurers, patients, consumers and employers – to promote market-based policies and help ensure all patients have access to affordable, innovative cures and treatments that they need and deserve.
The roadmap is in place for 2018: by bringing together stakeholders from all health care sectors, we can lower health care costs for consumers and patients across the nation.