Drug pricing and pharma: untold truths

KEY TAKEAWAY:  Pharma stocks lost over $24 billion in value after Mr Trump said drug prices are too high and the government needs to use a bidding system to determine the price of drugs.  The sell off in pharma stocks was because Wall Street has finally realized the “gravy train” is coming to an end.

A survey by Kaiser Family Foundation Health Tracking Polls says 77% of people think drug costs are unreasonable .  Despite the cost of drugs, almost three-quarters of those taking medicines can afford to pay for their prescriptions. That still leaves millions struggling to afford them, and means that drug pricing will remain contested and in the news. However, let’s first clarify a couple of things.

According to the NY Times “manufacturers set list prices for their brand-name drugs; those are the eye-popping figures that have sent Congress and presidential candidates into fits of outrage. But almost no one actually pays those prices. Insurers and pharmacy-benefit managers, who manage drug plans for insurers, negotiate discounts and rebates, which lowers the effective cost of a drug. And they have been getting better at doing this.

List prices for drugs rose about 12 percent in 2015, net prices — what insurers and employers actually paid — grew only about 2.8 percent, the lowest rate in years, according to IMS Health, a research firm.  In addition the vast majority of drugs dispensed in the United States — more than 80 percent — are generics , which are low-cost alternatives to brand-name drugs. If your doctor writes you a prescription, there is a very good chance it will cost you $10 or less.

While I agree that there is no justification for the obscene prices of some drugs we have to remember that the prices in the press, or list prices,  are rarely the prices paid.  So why is pharma and the Street worried?  Because their lack of innovation is about to be exposed and they can no longer guarantee growth based on price increases or prices on new drugs.

Pharma has the mistaken belief that a new ad program will help alleviate the anger over drug pricing but this is a pure canard.  Consumers are still angry and the Internet is chock full of misinformation about drug pricing.  Don’t expect consumers to research whether the info they read on high drug prices is accurate, it’s just easy to demonize big pharma.  In the meantime the possible repeal of the ACA will learn that insurers are going to get bigger and more powerful which in turn is going to crush patients.

If pharma wants to earn the trust of the public perhaps they could start with a press conference saying “we will not allow any patient, who needs our drugs, to go without them because they can’t afford them”.

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