KEY TAKEAWAY: Changes, big changes, are coming to healthcare. Among the targets are insurers who are raking in billions as well as PBM’s and pharma. As more companies merge or swallow up smaller one’s pharma is going to have to cut the fat because the public is not going to allow price gouging anymore.
The critical debate points for expensive drugs are benefits vs. cost. To date, pharma has been applying the logic that living longer with some chronic health conditions warrant high prices. What they are overlooking, however, is the fact that medical bankruptcies are still escalating.
66.5% of all bankruptcies are related to medical issues, either because of expensive medical bills or time away from work, reported Lorie Konish for CNBC, citing a study by the American Journal of Public Health. The study looked at court filings for a random sample of 910 Americans who filed for personal bankruptcy between 2013 and 2016 and found that 530,000 families file for bankruptcy every year for medical issues or bills.
Pharma’s response has been to raise prices yet again.
A new report by UBS, an investment bank, finds that Americans spent nearly two-thirds of all money spent globally on new drugs from 2012 to 2017. On June 14th Bluebird Bio unveiled a gene therapy to treat an inherited blood disorder that will cost nearly $1.8m per treatment. Shortly before, Novartis, a Swiss giant, priced its gene therapy for spinal muscular atrophy at $2.1m, making it the world’s most expensive medication.
According to The Economist “working out how profitable drug firms are is not a simple matter. Their net margins of 11%, less than restaurants and one-fifth those of railways, do not exactly scream price gouging. But a fairer picture can be reached by adding back interest costs, adjusting for leases and, crucially, by also treating research and development expenses as an investment that is depreciated gradually over time. According to a recent study by Aswath Damodaran of New York University’s Stern School of Business, on this basis drug firms’ margins are 24%, higher than most other sectors.
At the same time we are all paying more for insurance.
One in six Americans who get insurance through their jobs say they’ve had to make “difficult sacrifices” to pay for healthcare in the last year, including cutting back on food, moving in with friends or family, or taking extra jobs. And one in five says healthcare costs have eaten up all or most of their savings.
I believe change is coming and the current healthcare model is in danger. What does this mean for pharma?
1ne: Layoffs are coming as pharma focuses on ways to reduce costs.
2wo: DTC marketing will be more focused on ROI.
3hree: Expect heavy scrutiny on pharma CE and insurance company CEO salaries.
4our: I expect insurance companies are soon going to be saying no to expensive cancer treatments that do not have demonstrated value in extending patients lives past a couple of weeks.