Drug Costs

What You Won’t Hear in a Half Minute Ad

October 23, 2018 11:08 am

The midterm elections are less than three weeks away. Most Americans are inundated with negative political ads. These spots target candidates for their past statements or legislative positions, but offer voters little information about why an individual took a particular stance. And that context matters.


The Centers for Medicare and Medicaid Services (CMS) currently is considering rules that would remove context from ads for breakthrough medicine by requiring drug-makers to include the list price of those treatments in their television advertising. That transparency will be meaningless – and possibly misleading – without context.


The problem with this proposed rule is that very few patients actually pay the list price for their medicine. Drug companies offer rebates and other discounts, and insurers, which negotiate some of those benefits, also pick up a portion of the cost. The reality is that list prices rarely reflect patients’ out-of-pocket costs, and the disclosure will discourage some people from taking their medicine, while forcing biopharmaceutical companies to disseminate often-misleading information about their own products.


To their credit, as CMS has moved forward to develop its regulations, several reporters have discussed drug price complexity, noting consumers very rarely shoulder the list price of a drug. CNN’s Tami Luhby said, “Like most things in America's health care system, it’s exceedingly difficult to know just how much a medication costs or what different players in the supply chain pay or earn along the way.”


One reason for the complexity is that drug companies offer generous rebates to make medicine more affordable. On average, biopharmaceutical companies provide rebates for more than one-third of the list price of branded medicine. Those rebates and other discounts saved $153 billion in 2017 alone. As DrugChannels.Net notes, that figure grew 10 percent between 2016 and 2017, even though net prices for brand-name drugs increased less than two percent that year.


The problem is that these rebates often don’t make it into patients’ pockets. Health insurers and industry middlemen known as pharmacy benefit managers, or PBMs, keep the bulk of those savings, adding them to their bottom line. In 2016, insurers kept$89 billion in savings. It’s not clear how much PBMs kept because that figure is not disclosed. This market means patients can sometimes pay more for their medicine than their insurer did.


Another important fact that won’t make it in a 30-second ad: 92 percent of biopharmaceutical companies don’t ever earn a profit. On average, it now costs more than $2.8 billion to bring a drug to market. With inputs like that, margins are very tight. 


The price of innovation, insurance co-pays and deductibles, and the rebates that pharmacy benefit managers keep—all of these factors go into determining what consumers pay for medicine.


We looked up a bunch of half minute ads. Generally, they contain no more than 120 spoken words. This blog post is now more than 400 words long. Providing context takes more than 30 seconds, which is why APMI is working to provide it.