About those drug price hikes…

  • Pharma is starting 2019 with a slew of price hikes, affecting more than 1,000 medications.
  • The average increase amounts to about 6 percent.
  • Price increases do not directly translate to increased profits. Most of the increases are on list price, or wholesale acquisition cost and are lost through a competitive rebating and contracting process with insurers, pharmacy benefit managers and the government, among others.

Once again the headlines would have us believe that the drug industry is going to fatten their profit margins with price increases but that isn’t true. If “journalists” had done their job they would be reporting that most consumers probably won’t see price increases and that the drug industry is taking aim at drug PDM’s.

According to PhRMA “due to negotiations in the market, retail medicine costs grew just 0.4 percent in 2017, the slowest rate since 2012, and net prices for brand medicines grew just 1.9 percent”. However, they fail to take into account drugs which are NOT purchased at retail such as cancer and MS drugs which are usually administered in a clinic because they are given via an IV.


A Kaiser Family Foundation poll last March found that 80 percent of the country believes that prescription drug prices are unreasonable. But when consumers complain about the high cost of drugs, what they usually mean is they are paying too much out of their own pockets. That’s a different issue.

Drug spending in the United States is slowing. Retail prescription drugs represent just 10 percent of the $3.5 trillion the nation spent on health care in 2017, according the Centers for Medicare & Medicaid Services. That’s an increase of just 0.4 percent — much less than the still modest 2.3 percent increase in 2016.

Quintiles IMS reports these manufacturer discounts, rebates and other concessions have more than doubled in value over the last few years, rising from $59 billion in 2012 to $127 billion in 2016. Even with manufacturer discounts, patients aren’t feeling relief at the pharmacy counter. That’s because insurance companies and middlemen in the drug supply chain have enjoyed the lion’s share of the savings.

The CVS Health logo appears above a trading post on the floor of the New York Stock Exchange, Monday, Dec. 4, 2017. Drugstore operator CVS is making a $69 billion offer for insurer Aetna as it tries to position itself as a one-stop shop for Americans’ health care needs with prescription drugs, clinics and insurance plans to cover those goods and services. (AP Photo/Richard Drew)

Insurers could use their discounts to reduce the financial burden borne by patients. But they often profit from those discounts even as they find new avenues to charge beneficiaries at the pharmacy counter.

Last year, 83 percent of Americans insured by their employer had a plan with at least three prescription drug tiers, according to the Kaiser Foundation. The average co-pay for the highest tier was $110.

If Congress is serious about lowering drug spending, they need to shine a light on middlemen and insurer practices. They are the ones who decide what patients actually pay for the latest medicines and by the way their profits are climbing rapidly.