Drug spending – where the money goes (updated)

Listen to this article

The results of a new study find that almost half of spending on brand medicines in the United States goes to pharmacy benefit managers (PBMs), hospitals, health insurers, the government and others – and not to biopharmaceutical companies.

The report from the Berkeley Research Group (BRG) shows that between 2013 and 2018, the amount of money spent on brand drugs that supply chain components and other entities retained for themselves has grown to about 46 percent of total spending.

In contrast, the portion of the spending that actually goes to the biopharmaceutical companies that spend billions to discover, develop and produce those medicines continues to decline, to about 54 percent of the revenue in 2018.

Dean Paranicas, president and chief executive officer of the HealthCare Institute of New Jersey (HINJ), a trade association that serves as the voice for the state’s leading research-based biopharmaceutical and medical technology companies, said the analysis underscores a key point.

“This powerful new evidence confirms that what patients pay for their brand medicines is not being determined by the companies that develop and manufacture those drugs,” Paranicas said. “We need to look at the whole picture, including the complex marketplace and supply chain, when considering how to lower costs for the patient.”

Paranicas pointed out that middlemen – not patients – are increasingly benefiting from the substantial discounts offered by drug companies.

“Brand drug companies offer $166 billion in discounts annually, which unfortunately are being absorbed by PBMs and other actors within the supply chain who use a drug’s list price – instead of the discounted price – to determine a patient’s copay and deductible,” he added. “If shared with patients, as the manufacturers intend, these discounts would provide significant and immediate relief to patients,” Paranicas said.

This powerful new evidence confirms that what patients pay for their brand medicines is not being determined by the companies that develop and manufacture those drugs.
– Dean Paranicas, president and CEO, HINJ

“There is no question that there is a prescription drug affordability problem in this country,” JC Scott, president and CEO of the Pharmaceutical Care Management Association (PCMA), the national trade association representing pharmacy benefit managers, said in response to the BRG study. “Unfortunately, rather than seek solutions and accountability for the most recent round of price hikes, this is yet another effort to shift blame to employers, unions, and insurers, the very entities that are struggling to provide affordable access for consumers. Independent research – including from the Office of Inspector General and the U.S. Government Accountability Office – finds pharmacy benefit managers (PBMs) are negotiating rebates and discounts that reduce prescription drug costs for patients and payers.”

BRG reported that between 2015 and 2018, the growth in total revenue for biopharmaceutical companies from sales of brand medicines was, on average, 2.6 percent annually, which the report notes is “in line with inflation.” During that same period, U.S. biopharmaceutical companies continued their time-consuming, risky and expensive pursuit of medical innovation, producing nearly 200 new cures and treatments.

“We will continue working with New Jersey’s Congressional Delegation and other key stakeholders to ensure the substantial discounts that could bring immediate relief to patients are no longer diverted to middlemen in the supply chain,” Paranicas said.

“PBMs and others in the supply chain,” Paranicas told NJBIZ, “could voluntarily pass the $166 billion in rebates and discounts, which are already being provided by biopharmaceutical companies, directly on to the patients at the point-of-sale.”

Alternatively, Paranicas said that Congress should act legislatively, or the Trump Administration should direct the Centers for Medicare & Medicaid Services (CMS) to revive its proposed 2019 rule that would have required PBMs and others in the supply chain to do so.

Scott expressed a similar willingness toward affecting change through policy.

“We understand prescription drugs are unaffordable for some consumers, and PBMs look forward to working with policymakers on real solutions to increase access and affordability,” Scott added. “However, while drug manufacturers set and raise prices for prescription drugs at extremely high rates, PBMs are holding spending in check by negotiating with drug manufacturers and drugstores and promoting lower-cost generics and more affordable treatment options.”

Editor’s note: This story was updated at 6:18 p.m. EST on Jan. 29 to include response from the Pharmaceutical Care Management Association.