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Notable Limitations of the Latest Drug Pricing Report

March 28, 2018
In a new report, Sen. Claire McCaskill, the ranking Democratic lawmaker on the Senate Homeland Security and Government Affairs Committee, suggests that prices for medications prescribed most commonly under Medicare have experienced average annual increases of 12% during the last several years.

The report perpetuates many of the same myths about prescription drug spending that we see all too often. Ed Silverman, a columnist and senior writer at STAT News, noted that the report suffers from a “notable limitation.” While that’s certainly true, unfortunately, there are more than one. In fact, there are three notable limitations in this latest drug pricing report.

First, the report uses a misleading definition of “drug prices.” This is the notable limitation Silverman was referring to, and it’s used repeatedly in stories about the biopharmaceutical industry. The Senate report looks at the “list price” of drugs, but to use Sen. McCaskill’s own analogy, this is like the sticker price of a new car before a final price has been negotiated with an auto dealer.

If you follow the pill from the research lab to the patient, you will see that the list price of a drug is almost never what a drugmaker makes or what patients pay. That’s because drugmakers provide tens of billions of dollars in rebates and discounts every year. In 2016 alone, these savings totaled roughly $127 billion.

According to the most recent data from the Centers for Medicare & Medicaid Services (CMS), on average, these rebates helped lower by more than 17% the cost of prescription drugs in the Medicare program — a powerful sign that private-sector negotiation works for seniors and taxpayers. Savings for some medicines – including those for treating cardiovascular disease – were even higher.

Second, prescription medicines are not “the dominant driver[s] of health care costs.” Spending on prescription drugs represents just 14% of all health care spending, and that’s been remarkably stable for more than 50 years. On the other hand, the share of health care dollars that go toward hospitals and physicians services equal 30% and 18%, respectively. Looking out over the next decade, these services are expected to grow by $1.1 trillion – nearly three times more than prescription drugs.

The same reality is true inside the Medicare program, where more than 80% of funding goes toward hospital services under Medicare Part A (42%) and physician services under Medicare Part B (43%). And while these two slices of the pie do include a small amount of spending on medicines, they are expected to grow by $552 billion over the next 10 years – nearly four times more than the projected growth in spending on prescription drugs.

Third, the Medicare prescription drug program is working extremely well for seniors and taxpayers. It’s not every day you hear a federal program has cost taxpayers $349 billion less than originally expected, or that 90% of beneficiaries are satisfied with the results. Yet that has been the legacy of the Medicare prescription drug program, and it’s easy to understand why.

The private health plans that administer the program often secure better savings for seniors than what’s available in the private market. Premiums are expected to drop by 3% this year. And the program has contributed to an 8% decrease in seniors’ hospital admissions and a 7% decrease in spending on hospitalizations, further proof that medicines can save lives and save money throughout the health care system.

As policymakers discuss ways to make prescription drugs more affordable, these are important facts that shouldn’t be omitted. Instead, they should be at the center of the debate, because that’s the best way to ensure all patients have access to the medicines they need with out-of-pocket costs they can afford.

You can learn more facts about health care spending by visiting You can also check out numerous infographics and issue briefs located in BIO’s advocate toolkit. Recent additions look at how the trend on prescription drug costs is heading in the right direction and why the Medicare Part D program is benefiting both seniors and taxpayers.