What’s Really Driving Drug Costs?

“For 2021, the NET prices for brand-name drugs dropped – for the FOURTH consecutive year…….”  Lantus, an insulin drug, has fallen 62% since 2012 but costs for patients with health insurance who use Lantus have GONE UP by 60% over the same period.” 

By John Lamartine, Forbes

Despite the wonders accomplished by the biopharmaceutical industry in providing us vaccines and therapeutants to get us out of the coronavirus pandemic, this industry – perhaps the most important in the U.S. – continues to be under attack for the cost of drugs. President Biden highlighted this in his State-of-the-Union address. But, he is not alone. Both sides of the congressional aisle don’t miss an opportunity to attack drug costs and this is only going to get more intense as we move toward the 2022 mid-term elections. Just this past week, Biden’s head of the Centers for Medicare and Medicaid Services (CMS) Ms. Chiquita Brooks-LaSure, asserted that high drug prices are a huge problem and that the administration would use “every lever at our disposal to ensure access to affordable, comprehensive, person-centered care, including affordable medication

Given this type of rhetoric, anyone would assume that drug makers are raising prices on life-saving medications at alarming and unsustainable rates. However, that isn’t the case. The Institute for Clinical and Economic Review (ICER) is an independent non-profit research organization that prides itself on being the watchdog for all things drug prices. In its most recent “Unsupported Price Increase Report”, ICER obtained a list of the 250 top selling drugs for 2020 and then analyzed the price increases for each drug. It immediately eliminated 228 of these drugs. Why? Because it turned out that these drugs did not have significant price increases. ICER by its own admission found that 91% of the top selling drugs did not qualify for its analysis as these drugs had very modest price increases. Furthermore, when it analyzed the other 9%, it found that new clinical evidence for a number of them could justify a price increase. Overall, eight drugs had price increases on the order of 7 – 12% without new clinical evidence to justify the increase. Eight out of 250 does not constitute a major drug pricing crisis.

There is another important piece of data that is equally as surprising. For 2021, the NET prices for brand-name drugs dropped – for the FOURTH consecutive year. A drug’s net price provides the actual revenues that the manufacturer earns after rebates, discounts and other reductions that are built into our convoluted healthcare system.

The pain that patients are enduring for the cost of their needed medications is certainly real. Yet, the drug companies are not raising prices outrageously, nor are they earning more money for their medications. What is going on? A terrific explanation came from Adam Gluck, Sanofi’s Head of U..S. Corporate Affairs using probably the most hotly contested drug pricing topic that exists in the country today – insulin. Gluck rightly points out that across the whole industry in 2021, drug companies paid Pharmacy Benefit Managers (PBMs) $350 billion. PBMs are essentially a part of the drug distribution system.

“Unfortunately, PBMs don’t use those discounts and rebates to lower costs for patients at the pharmacy counter. The bulk of the billions that Sanofi has paid simply flows into a black hole that becomes revenue for insurance companies and PBMs to use however they choose. Perhaps the best example of the ‘black hole’ effect is insulin prices and costs, specifically our most prescribed insulin, Lantus (insulin glargine injection). In our new report, we show that our net price – the amount we receive as the manufacturer of Lantus after discounts and rebates are paid when a subscription is filled by a patient at the pharmacy – has fallen 62% since 2012. But even as PBMs have negotiated better deals for themselves to drive down their costs, out-of-pocket costs for patients with health insurance who use Lantus have GONE UP by 60% over the same period.”

Unfortunately, our elected officials are looking in the wrong direction for controlling the cost of drugs. My home state of Connecticut is a great example. Currently, SB-13, the Governor’s proposal to reduce the cost of prescription drugs is focused solely on the companies that research, discover and manufacture medications. All of the other companies involved in drug costs – insurers, PBMs, etc. – are being given a free pass. There is a particular irony in this. The Pfizer labs in Connecticut are where the life-saving antiviral Covid-19 drug, Paxlovid, was discovered and developed. As Connecticut is going through hoops trying to attract more investment in the biosciences, it is trying to decrease revenues of these very same companies.

The biopharmaceutical industry invests 20 – 30% of its top line revenues into R&D. These investments will lead to the next breakthroughs in treating cancer, diabetes, depression and will be there when the next pandemic occurs. It is a pretty simple calculation – with a decrease in revenues, the biopharmaceutical industry will not be able to carry out as much research. That is the last thing we should be doing given the health challenges we face as a nation. Let’s turn our attention to where we can get real savings in managing drug costs

Business is about solving other people’s problems. Solving the high cost of healthcare giving employers a competitive advantage is ours.