SECOND OPINION: PHRMA STUDY REHASHES DEBUNKED SUPPLY CHAIN BLAME GAMES

Big Pharma Sidesteps Industry’s Own Price Hikes and Egregious Practices in Latest Bid to Evade Accountability

A recent Big Pharma study rehashes the tired tactic of blaming others in the supply chain for out-of-control prescription drug prices in a bid to evade accountability for the industry’s own egregious practices. The study, commissioned by the Pharmaceutical Researchers and Manufacturers of America (PhRMA) and conducted by Berkeley Research Group, places the blame for rising prescription drug prices on “nonmanufacturer stakeholders,” entities that include pharmacy benefit managers (PBMs), health plans, hospitals, the government, pharmacies and others in the supply chain – in other words, everybody except brand name drug manufacturers.

PhRMA’s study trots out many of the same debunked arguments the industry has pushed for years to deflect blame for prescription drug prices – especially, that negotiated discounts from PBMs drive increased drug spending in the U.S.

The fact is brand name drug companies are solely responsible for setting and hiking prescription drug list prices — and game the system to extend product exclusivity on their products, undermine competition from more affordable alternatives in the market and keep prices high. Let’s set the record straight.

First of All: What Do PBM’s Do?

PBMs’ mission is to bring down health care costs for patients. They do this in a few ways.

First, they negotiate with drug companies to secure lower prices on certain drugs – savings that patients, employers, and taxpayers realize in lower premiums and out of pocket costs. Second, they work with doctors to ensure that patients are getting medications that are right for them. Third, they work with patients to ensure they take their medication properly, so they get healthier faster and stay healthier longer.

More than 266 million Americans are served by the PBM industry. Even Big Pharma companies, who are themselves large employers, contract with PBMs to negotiate lower drug prices for their own employees. And before Big Pharma leaned into a years-long blame game strategy, the brand name drug industry used to praise the role of PBMs.

MYTH #1: Eliminating PBMs and Rebates Will Lower Drug Prices

FACT: Many High Price Drugs with No Competition Have No Rebates.

• Most Drugs Do Not Receive Rebates, Including 89 Percent Of Medicare Part D Prescriptions. (Nicholas J. Johnson, Charles M. Mills & Matthew Kridgen, “Prescription Drug Rebates And Part D Drug Costs,” Milliman, 7/16/18)
• Few Rebates Are Offered For New Drugs Which Can “Cost Hundreds Of Thousands Of Dollars A Year” Because They Lack Competition. (Katie Thomas, “Meet The Rebate, The New Villain Of High Drug Prices,” The New York Times, 7/27/18)

FACT: PBMs Serve as A Vital Check on Big Pharma’s Pricing Power And Are One of the Only Entities Bargaining With Drug Makers For Lower Prices.

• PBMs reduce the average cost of a brand-name drug from $350 to $268. (“The Return On Investment [ROI] On PBM Services,” Visante, November 2016)
• PBMs account for just six percent of the net cost of a prescription, while manufacturers account for 65 percent. (“The Return On Investment [ROI] On PBM Services,” Visante, February 2020)
• For every $100 spent in the supply chain on branded drugs, PBMs retain about $2, compared to $58 for manufacturers. (“The Flow of Money Through the Pharmaceutical Distribution System,” USC Schaeffer Center, June 2017)

MYTH #2: PBMs And Others In The Supply Chain Are Middlemen Who Don’t Add Value To The System.

FACT: More Than 266 Million Americans Rely on PBMs to Lower The Annual Cost Of Prescription Drugs By Up To 50 Percent.

• PBMs save payers and patients between 40 and 50 percent on annual prescription drug costs. (“The Return On Investment [ROI] On PBM Services,” Visante, February 2020)
• PBMs produce savings for patients and plans of $266 per branded drug, reducing the average cost of a brand-name prescription drug from $578 to $312. (“PBMs Save Employers and Patients $100 Billion Per Year on Rx Costs,” PCMA, February 2021)
• PBMs are projected to save health plans and consumers more than $1 trillion on prescription drug costs over the next decade. That translates to an average savings of $962 per person per year. (“Pharmacy Benefit Managers (PBMs): Generating Savings for Plan Sponsors and Consumers,” Visante, February 2020)

MYTH #3: Price Savings Secured By PBMs In The Form of Rebates Aren’t Passed On To Patients.   

FACT: The Resulting Savings From PBMs Are Passed on to Patients and Consumers in the Form of Lower Out-Of-Pocket Costs, Lower Premiums and Lower Tax Dollars.

• Two of the largest PBMs pass the vast majority of rebates on to customers. On average, Express Scripts returns 95 percent of rebates directly to its clients and CVS Caremark returns 98 percent of rebates. (“A Call for A Consensus: Price Increases in Branded Drugs Are Unsustainable,” Express Scripts, 8/2/18) (“Myths vs. Fact: Pharmacy Benefit Management,” CVS Health, January 2021)
• A report from the U.S. Government Accountability Office found that virtually all – 99.6% – of prescription drug rebates negotiated by PBMs with drug manufacturers, in Medicare Part D, are passed through to plan sponsors and used to lower costs for Medicare beneficiaries. (“Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” U.S. Government Accountability Office, July 2019)
• PBMs save payers and patients an average of $962 per person per year. (“The Return On Investment [ROI] On PBM Services,” Visante, February 2020)
• On average, PBMs’ savings per person per year in Medicare Part D are $2,147. (“The Return On Investment [ROI] On PBM Services,” Visante, February 2020)

The Real Culprit: Big Pharma’s Price Hikes & Skyrocketing Launch Prices

While Big Pharma revamps its supply chain blame game strategy, the industry’s repeated price hikes and skyrocketing launch prices for new drugs have contributed to an unprecedented crisis of prescription drug affordability. The industry’s pandemic price hikes alone, while millions of Americans have continued to struggle to afford their medications, are staggering.

Pandemic Price Hikes

• In January 2022, drug companies hiked prices on 765 brand name prescription drugs, by an average of 4.8 percent.
• In June and July 2021, Big Pharma hiked prices on 67 brand name prescription drugs by an average of 3.5 percent.
• In January 2021, Big Pharma raised the list price of 822 brand name prescription drugs by an average of 4.6 percent.
• In July 2020: Despite calls to suspend traditional mid-year price hikes while millions of Americans grappled with economic uncertainty caused by the COVID-19 crisis, Big Pharma increased prices on more than 65 brand name drugs.
• In January 2020: Big Pharma hiked prices on more than 600 drugs by an average of 5.2 percent.
• In July 2019: Big Pharma hiked prices on 104 drugs by an average of 13.1 percent.

Skyrocketing Launch Prices

The U.S. Food & Drug Administration’s (FDA) approval of brand name drug maker Biogen’s unproven Alzheimer’s treatment Aduhelm, and the company’s subsequent pricing of the drug at $56,000 for a year of treatment, reignited the controversy around the brand name drug industry’s pricing tactics – in particular, setting higher and higher launch prices for new drugs.

After broad backlash from patients, lawmakers, drug pricing advocates and medical experts, the company reduced Aduhelm’s price — but even the reduced price tag for the drug was still approximately three to 10 times greater than what the Institute for Clinical and Economic Review (ICER) concluded would be a fair price for the treatment. ICER’s analysis found that a fair price for Aduhelm would fall somewhere between $2,500 and $8,300.

And while Aduhelm is a prime recent example, the drug is part of an increasing trend of egregious launch prices from Big Pharma companies. Researchers at Duke University’s Fuqua School of Business released a study in June of last year that found launch prices for new drugs have doubled since 2005 – driving up taxpayer spending in the Medicare Part B program.

The study found that between 2005 and 2010, Medicare Part B drug spending increased from around $13 billion per year to $16.5 billion per year, at an annual growth rate of four percent. But from 2010 to 2015, Part B drug spending increased at a nearly nine percent annual compound growth rate – from $16.5 billion to north of $25 billion over those five years.

The Duke University researchers argue that by setting higher launch prices on new drugs, Big Pharma companies are numbing people to just how high some of their new launch prices are – a process that enables them to charge even greater prices in the future.

Big Pharma’s out-of-control launch prices are also particularly evident in oncology treatments. A 2018 study from IQVIA’s Institute for Human Data Science found median launch prices for new cancer drugs more than doubled from 2013 to 2017, from around $79,000 for a course of treatment to over $160,000 for a course of treatment. The IQVIA study also found that every single new cancer drug brought to market in 2017 had a price tag over $100,000.

Big Pharma’s continued price hikes and increasing launch prices point to why lawmakers must cut through the industry’s blame game and advance solutions to lower prescription drug prices by holding brand name drug companies accountable.

Read more on how Big Pharma games the system to undermine competition HERE.

Read more on why the misguided Pharma-backed rebate rule is the wrong medicine to lower drug prices HERE.

Read more on solutions to hold Big Pharma accountable and lower prescription drug prices HERE.