Drug Costs

What’s In The Pew Drug Pricing Report?

March 21, 2019 8:21 am

This blog – unsurprisingly – has reported extensively on prescription drug costs. As this post, this one and this one show, there’s a lot of data out there that show “rising” costs aren’t rising that quickly. Now the Pew Charitable Trusts has attempted to put a lot of the data in one place, releasing a report this month called “The Prescription Drug Landscape, Explored” that looks at retail pharmaceutical spending between 2012 and 2016.


Here’s a quick overview of what is in the report:


 - An explanation of why drug spending rose during that period. The report notes that, while the Centers for Medicare and Medicaid Services (CMS) estimates total retail prescription drug spending rose 26.8 percent in the four years between 2012 and 2016, the “growth was largely attributable to the introduction of new specialty drugs, such as those to treat hepatitis C and various forms of cancer.” In other words: new cures came on the market. Another factor was increased access to insurance coverage. (The number of patients with health insurance rose 13.2 percent from 2012 to 2016.)


 - Manufacturers are providing more rebates, which kept prices low. Manufacturer rebates grew from $39.7 billion in 2012 to $89.5 billion in 2016, a more than 125 percent increase in four years. The report also acknowledges this “cost-sharing assistance from manufacturers helped shelter patients from rising drug costs.”


 - Manufacturers responded to higher patient coinsurance with more discounts. Drug manufacturers are trying to help patients in other ways, too. The report explains that while “the shift toward requiring patients to pay coinsurance on high-cost specialty drugs in insurance plans has made it more difficult for some patients to afford these therapies” manufacturers have responded by offering “additional patient assistance, such as copay coupons, to offset the increase in patient responsibility for drug costs.”


 - Pharmacy Benefit Managers (PBMs) and pharmacies are making more money. Net revenue for pharmacies rose from $30.8 billion in 2012 to $76.9 billion in 2016. Net revenue for PBMs totaled $22.4 billion 2016, a 93 percent increase from 2012’s $11.6 billion in revenue. (Employees at PBMs claimed their employers passed on 78 to 91 percent of manufacturer rebates each year. This data is impossible to verify, of course, because PBMs aren’t held to any standards of transparency. As the report itself explains, “Limited data are available on PBM financial relationships with other supply and payment chain entities because the terms of these contracts are almost always confidential.”)


 - Manufacturer revenues didn’t increase much, and even fell in one year. The report concludes, “After accounting for all types of price concessions, including negotiated rebates, discounts mandated by law, and patient assistance, pharmaceutical manufacturers’ net revenue on retail prescription drugs grew an average of 3.6 percent annually during the study period, but decreased from $214.7 billion in 2015 to $204.6 billion in 2016, due in part to the discounting of hepatitis C drugs.” Over four years, net revenues rose only 14 percent, from $179 billion in 2012 to the $204.6 billion in 2016.


Here is what is missing from the report: while it discusses those drug manufacturer revenues, it doesn’t discuss how much the industry spent annually on R&D and other costs. In 2016, manufacturers spent $65.5 billion alone on R&D. The next year they spent $71.4 billion. The Pew report has a ton of interesting data that provides important context for the drug pricing debate, but it doesn’t actually tell the full story.