Drug Costs

A Look at Drug Pricing for the New Year

January 15, 2020 4:03 pm

As it has for the past few years, the new year brought headlines about the number of pharmaceuticals for which list prices will increase. Thankfully, at least a few news outlets, offered context that should help Americans understand this issue more fully.  


The Hill, for example, explained that the news will not affect the majority of medications on the market. In fact, according to one company, its list prices increases, which average only 5.8 percent, only apply to about one quarter of the treatments it offers. Other outlets noted list prices are not the prices that patients actually pay. The Wall Street Journal, for example, explained those costs are declining, falling by one percent in 2018 and 3.4 percent over the last five years.


To those facts, we add additional context: it is important to remember that revenues from current treatments are used to fuel the search for new cures.


According to Statista, research and development spending by the pharmaceutical industry totaled nearly $1.8 trillion globally in 2018, a more than ten-fold increase from the $129 billion that was spent in 2010. According to PhRMA, biopharmaceutical companies are responsible for 81 percent of manufacturing milestones, and these companies “outpaced all other manufacturing sectors in economic growth from 2000-2016.” And—lest anyone believe that the government provides new drugs—we offer this paper from the National Institutes of Health, which said, “[W]hile NIH’s federally funded research has contributed in a substantial, dramatic, yet general, way to advances in medicine and biology, the direct contributions to a final therapeutic product … is limited and difficult to determine.”


Additionally, while net drug prices have declined, other health-care costs are rising quickly. In an editorial published before the winter holidays, the New York Post noted that recent data from the Centers for Medicare and Medicaid Services show that, while retail pharmaceutical spending is down, spending on hospital services rose 4.5 percent in 2018 to $1.2 trillion. Over the past four years, hospital spending has increased 15.2 percent.


That trend continued into 2019. According to Altarum, a nonprofit health-care research and consulting organization, year-over-year hospital price growth was 2.4 percent from November 2018 to November 2019 while annual drug price growth was only 0.5 percent.


Health insurance costs also are up dramatically. Axios’ Caitlin Owens recently opined, “The cost of private health insurance is out of control.” Indeed, per capita spending for private insurance has grown by almost 53 percent over the last decade. According to the Kaiser Family Foundation, private insurance expenditures are now more than one-third of total health spending, up from 21 percent in 1970.


Many of the articles we’ve read about drug prices over the last few weeks have predicted their news will fuel the debate that’s already happening in Washington. Hopefully it will—by compelling lawmakers to take a more comprehensive look at health care costs, instead of focusing on a single industry, and one that also happens to be working to develop innovative new treatments for the future.