Most Americans would be surprised to learn that overall spending on prescription drugs grew by less than one percent in 2017. Once rebates and other discounts were accounted for, patients spent 2.2 percent less per-capita on their medicine. Since 2008, per-capita spending has only increased by 1 percent annually. That trend alone debunks many now-popular attacks on the biopharmaceutical industry. In fact, prescription drugs represent just 14 percent of total health-care spending in the U.S. – less than half of what Americans spend on hospitals.
Some patients are paying higher out-of-pocket costs because insurance companies and pharmacy benefit managers (PBMs) are forcing them to shoulder a greater share of their health-care spending. Since 2006, deductibles have skyrocketed by 300 percent. Over the same period, coinsurance payments have increased by 89 percent. That is a big problem when hospitals are marking up the cost of medicine by nearly 500 percent. And insurers cover a much smaller share of prescription-drug costs than they do for other health services.
Drug companies offer generous rebates to make medicine more affordable. On average, biopharmaceutical companies rebate more than a third of the list price of branded medicine. Those rebates and other discounts saved $153 billion in 2017 alone. But sadly, insurers and industry middlemen known as PBMs often keep the bulk of those savings to pad their profits. Those rebates determine which drugs are covered and which aren’t. In this convoluted system, middlemen make more money when prices rise. As a result of this unfair market, patients often wind up paying more for their medicine than their insurer or drug plan did.
The biopharmaceutical industry spends enormous time and money developing breakthrough medicine. The average cost to develop a new prescription drug exceeds $2.8 billion, a dramatic increase over the previous decade thanks to higher regulatory hurdles. The process takes more than a decade. Only 10 percent of new treatments make it to Phase 1 Food and Drug Administration testing. The biopharmaceutical invests more in research and development than any other industry, plowing more than 18 percent of its overall revenue into developing new medicine.
Just 10 percent of the drugs that make it to the FDA’s Phase 1 testing process are eventually approved. The exhaustive review typically takes 9-11 years. And some 70 percent of those clinical programs are led by small companies that depend on venture capitalists, angel investors and larger pharmaceutical companies that never see a return on those investments. In fact, among the sliver of medicines actually approved by the FDA, just two out of every 10 generates enough revenue for its makers to recoup the money spent to develop it. That explains why, as an industry, biopharmaceutical companies rank 36th when it comes to return on equity, lagging insurers, hospitals and drugstore chains.
This dedication to the research and development of new treatments is why the U.S. produces more new drugs than the rest of the world combined. Firms headquartered in the U.S. are conducting more than 61 percent of the clinical programs in the world, meaning these companies will generate the treatments and cures of tomorrow. These investments have made the biopharmaceutical industry a major driver of American economic growth. In total, the industry employs 1.7 million people in communities across the U.S. and supports an additional 1.8 million jobs.
We are in the midst of a biopharmaceutical revolution. Research that began a generation ago is finally paying dividends with researchers developing a breathtaking number of treatments and cures for diseases and chronic illnesses that were previously untreatable. This pipeline depends on a growing community of world-class researchers and investors willing to finance big bets on future discoveries that rarely produce profits. The U.S. currently dominates both categories. As a result, American biopharmaceutical companies are developing more new medicines than the rest of the world combined.
Breakthrough medicines are changing lives and helping people live longer. The death rate from heart disease has declined by nearly 60 percent since 1980. Survival rates are even higher for HIV/AIDS, with the death rate plummeting 88 percent since antiretroviral therapies were introduced. What was once a fatal disease has become a chronic condition. New treatments have also reduced cancer deaths by 26 percent since they peaked in the 1990s. Since 1950, life expectancy has increased by a decade for both men and women, and innovative medicine played a role in those improvements. But this is just the beginning. The FDA approved 56 new medicines in 2017 that included advanced treatments for multiple sclerosis, sickle cell disease and rare forms of blood cancer.
Researchers around the world are in the process of developing more than 7,000 new medicines to treat a range of diseases, infections and other illnesses. The list includes:
More than 450 medicines are being developed to treat rare diseases, such as multiple myeloma, cystic fibrosis and ALS. Many of these breakthrough treatments offer patients the promise of time –
more time with friends and loved ones, more time to do things they love, more time to be alive. Can you put a price tag on time?
A patient who contracted Hepatitis C back in 2011 could spend nearly $500,000 over his or her lifetime treating the disease. The average cost has plummeted since the Food and Drug Administration approved the first medicine to cure the disease in more than 90 percent of those who take it. Those costs will decline further as other treatments hit the market. The Hepatitis C example shows how the ongoing costs of treating a disease often dwarf the upfront price tag of a cure.
Many innovative new medicines dramatically reduce the long-term costs of managing diseases or chronic illnesses. And imagine the future savings, if the industry introduces new cures or more effective treatments for cancer, diabetes or heart disease, among others. Promising treatments to delay the onset of Alzheimer’s by five years could save Medicare and Medicaid more than $200 billion annually by 2050. Similarly, new cures for Hepatitis C will dramatically reduce the need for costly liver transplants or ongoing treatments for liver cancer. And hospitalization rates for HIV/AIDS declined by 23 percent between 2002 and 2007 because of new medicines.
It has become popular in recent years for politicians to villainize the biopharmaceutical industry, but most of the proposals championed by its critics pose more risk than reward. FDA commissioners under Presidents Bush, Obama and Trump have all warned about the dangers of importing medicine from abroad because other countries don’t enforce the same strict safety and testing standards. And the Congressional Budget Office has issued multiple studies to show how direct government negotiations with drug makers don’t lower costs for patients – or taxpayers.
The most damaging proposals would limit patients’ choice and stifle the kind of innovation that has made the U.S. the world leader in biopharmaceutical innovation. Some states are turning to an unelected advisory board funded by industry critics to determine what drugs will – and will not – be covered under Medicaid. The board resembles a government-sponsored panel in England that regularly denies patients access to the treatments they need because the math doesn’t work. Why would we let math determine who lives and who dies?
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