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Why a New Study on Drug Costs Misses the Mark

January 25, 2018
BIO President and CEO Jim Greenwood recently described 2017 as a “transformative year in medicine.” New breakthrough cures and treatments were delivered to patients. Policymakers took positive steps to help make sure medicines are affordable. And we learned the trend in prescription drug costs is moving in the right direction.

This is all good news for patients, but it’s not the kind of news you read every day. Instead, the public is fed a steady diet of misinformation that suggests drug costs are spiraling out of control. The latest comes from the Health Care Cost Institute (HCCI), which this week released a study that misses the mark in three important ways. 

#1. Creating a new and flawed definition of “drug prices.” Among its chief claims, HCCI states that “prices” for brand-name medicines increased by 110% between 2012 and 2016. The number caught our attention, because it’s radically different from most studies on drug prices and here’s why.

HCCI is looking at just a slice of the drug cost ecosystem, specifically, what’s paid to a pharmacy when a prescription is filled. This is essentially a new twist on an old gimmick we see time and again in reports on drug costs, which often focus on the list price of a drug (the initial price set by drug manufacturers) versus the net price of a drug (the final price after discounts and rebates are negotiated with drugmakers).

Many of these savings are provided to insurers and middlemen after a drug is sold at the pharmacy, which means they are not included in the data HCCI examined. Every year drugmakers provide billions of dollars in rebates and discounts — roughly $127 billion in 2016. Ignoring even a fraction of these savings will skew one’s views of drug prices. In fact, according to research by IQVIA, net prices on brand-name drugs grew just 3.5% in 2016 and are expected to hold steady in the coming years.

#2. Discounting the value of new medicines. This is another gimmick we see repeatedly in opinion pieces and studies critical of the biopharmaceutical industry, and it involves a remarkable medical breakthrough.

In 2013, biotech innovators successfully delivered a cure for hepatitis C, a disease afflicting millions of patients in the United States. A new generation of treatments transformed what was once a death sentence into a 90% survival rate. Naturally doctors and patients rushed to get the new cure and naturally spending on prescription drugs increased. As IQVIA has noted, ”the dramatic rise and then plateau of hepatitis C spending represents a unique event in the history of medicine spending that distorts most of the recent trend.”

These treatments are not only saving lives, they are also saving money. Jim Greenwood wrote last year that “curing hepatitis C is a bargain,” because it reduces the need for costly liver transplants, hospital stays and doctor visits. Unfortunately, many short-sighted studies don’t see it that way.

By reaching back more than five years, HCCI guarantees that cures for hepatitis C dramatically inflate its alleged growth in drug “prices.” In fact, let’s assume patients never had access to these miracle cures. Using HCCI’s own data, the increase in drug “prices” would have been approximately 24% — not 110% — or largely the same as the overall growth in health spending.

#3. Ignoring recent facts that paint a completely different picture. By creating a flawed definition of drug “prices” and discounting the value of new medicines, the HCCI study promotes a narrative that doesn’t fit with the current reality of prescription drug costs.

The Centers for Medicare & Medicaid has reported that spending on retail drugs increased by 1.3% in 2016—slower than the growth in spending on hospitals and private insurance. In a recent “chart of the week,” the Kaiser Family Foundation reaffirmed that the growth is drug spending has slowed dramatically.

Meanwhile, the Altarum Institute reports that drug prices grew just 1% over the last year, and that’s before factoring in manufacturer discounts and rebates. Prime Therapeutics has even revealed negative net growth in prices for last year.

Again, this is all good news for patients, even if the news isn’t reflected in national headlines. That’s why BIO will continue to set the record straight on prescription drug costs and continue to promote policies that support biomedical medical and ensure patients have access to affordable medicines.