Straight talk on drug pricing

  • While there is no excuse for the price increases on some drugs, like insulin other price increases are not aimed at consumers. They are aimed at PBM’s and insurers who are seeing their profits increase at a rapid rate.
  • Americans are among the most unhealthy in the world.
  • Millennials are so overweight, it has them on pace to be part of the most obese generation in history.

Americans are in trouble when it comes to their health. Recent reports from the Centers for Disease Control and Prevention suggest that life expectancy is dropping for the first time in decades. Suicide, alcoholism and the opioid epidemic are all partly to blame. Millennials are also overweight at a level that has them on pace to be part of the most obese generation in history. And despite anti-tobacco campaigns, smoking continues to be a problem, with some deaths attributable to chronic lower respiratory diseases.

Beyond the toll of human suffering, obesity and diet-related diseases impose massive and rapidly growing economic costs.

According to the American Diabetes Association, the annual cost of diabetes in 2017 was $327 billion, including $237 billion in direct medical expenditures and $90 billion in reduced worker productivity. (More than 90 percent of diabetes cases are Type 2, which is strongly associated with obesity.) The total impact of obesity and its related complications on the United States’ economic output has been estimated at between 4 and 8 percent of gross domestic product. Even on the lower end, that’s comparable to the 2018 defense budget ($643 billion) and Medicare ($588 billion).

Among more than 1.5 million cancers in 2014, 42% were traced to smoking, exposure to second-hand smoke, being overweight or obese, drinking too much alcohol, eating red and processed meats, eating too few fruits and vegetables, not exercising, exposure to ultraviolet radiation through activities like tanning and six cancer-related infections (including HPV)these factors, as well as 45% of deaths in that year.

What this translates to is an increase in healthcare costs that everyone has to pay. According to former president Bill Clinton, “the state of U.S. health care is catastrophic. In no other area is the U.S. lagging so far behind the European Union. Average U.S. life expectancy is 78.7 years to compare with 81 in the 28 countries of the European Union”.

The media is finding an easy target in big pharma and, in some cases, they are right but overall insurers and other middlemen in the drug supply chain bear much of the responsibility for the exorbitant out-of-pocket expenses consumers pay. Pharmaceutical companies provide large discounts off the list price of their drugs. Quintiles IMS (now Iqvia) 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.

Those middlemen are the pharmacy benefit managers. They extract considerable discounts from pharmaceutical firms and pass part of the savings to insurers that agree to add the discounted drug to their formulary, or the list of drugs they’ll cover.

I can’t justify the price increases on drugs like Humira and insulin which, it seems, were done to pad balance sheets but overall we have only ourselves to blame for high healthcare costs. Unless we do something about it, and quickly, drug costs, which only represent 10% of every healthcare dollar spent are going to be the least of our worries.