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Drug costs

  1. 1. Prescription Drug Pricing The Debate Richard Meyer Online Strategic Solutions 2018
  2. 2. Why does US healthcare cost so much? • More than half of the total spending increase was due to price and intensity increases, which contributed $583.5 billion to the $933.5 billion total increases. • Diabetes was the condition with the greatest increase in spending, rising by $64.4 billion between 1996 and 2013. Most of this money went to pharmaceuticals prescribed to treat it. • Spending on ambulatory care, which includes ER and outpatient hospital services, also played a role in increased overall costs. Annual spending on ambulatory care swelled from $381.5 billion in 1996 to $706.4 billion in 2013. This increase, about $324 billion, was higher than any of the other five types of care analyzed. • Another key driver of the total increase in health care expenditures between 1996 and 2013 was spending on pharmaceutical drugs. For example, $44.4 billion of the total $64.4 billion increased expenditure for diabetes was spent on medications meant to treat, as well as to prevent, the disease. Source: http://www.cnn.com/2017/11/07/health/health-care-spending-study/index.html
  3. 3. Estimates suggest that Rx drugs will continue to represent a larger portion of overall health spending
  4. 4. Spending on prescription drugs has risen rapidly over past decades
  5. 5. We share the blame for high healthcare costs
  6. 6. Health Risk Behaviors that Cause Chronic Diseases • Health risk behaviors are unhealthy behaviors you can change. Four of these health risk behaviors—lack of exercise or physical activity, poor nutrition, tobacco use, and drinking too much alcohol—cause much of the illness, suffering, and early death related to chronic diseases and conditions. • In 2015, 50% of adults aged 18 years or older did not meet recommendations for aerobic physical activity. In addition, 79% did not meet recommendations for both aerobic and muscle-strengthening physical activity. • About 90% of Americans aged 2 years or older consume too much sodium, which can increase their risk of high blood pressure. • An estimated 36.5 million adults in the United States (15.1%) said they currently smoked cigarettes in 2015. Cigarette smoking accounts for more than 480,000 deaths each year. Each day, more than 3,200 youth younger than 18 years smoke their first cigarette, and another 2,100 youth and young adults who smoke every now and then become daily smokers.
  7. 7. The Cost of Chronic Diseases and Health Risk Behaviors • Eighty-six percent of the nation’s $2.7 trillion annual health care expenditures are for people with chronic and mental health conditions. These costs can be reduced. • The total estimated cost of diagnosed diabetes in 2012 was $245 billion, including $176 billion in direct medical costs and $69 billion in decreased productivity. • Medical costs linked to obesity were estimated to be $147 billion in 2008. Annual medical costs for people who were obese were $1,429 higher than those for people of normal weight in 2006. • For the years 2009–2012, economic cost due to smoking is estimated to be at least $300 billion a year.
  8. 8. Nearly Half of Cancer Cases Are Within our Control • In a study published in CA: A Cancer Journal for Clinicians, researchers led by Dr. Farhad Islami at the American Cancer Society analyzed national cancer data and calculated how much of cancer cases and deaths can be attributed to factors that people can change. These included 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). • Among more than 1.5 million cancers in 2014, 42% were traced to these factors, as well as 45% of deaths in that year. • The latest data suggest that the decline might be even steeper if people address some of their risky behaviors that contribute to cancer.
  9. 9. The costs of obesity in the US • The medical care costs of obesity in the United States are high. In 2008 dollars, these costs were estimated to be $147 billion. • The annual nationwide productive costs of obesity obesity-related absenteeism range between $3.38 billion ($79 per obese individual) and $6.38 billion ($132 per obese individual)
  10. 10. Even though prescription drugs account for $.12 of every healthcare dollar drug companies have been under attack
  11. 11. High price tags for medicines are about to come under continued pressure • Data on federal spending on programs for the poor and the elderly show that last year $9.2bn was spent on a single medicine—Harvoni, which cures Hepatitis C. • A survey by Kaiser Family Foundation Health Tracking Polls says 77% of people think drug costs are unreasonable. • Almost three-quarters of those taking medicines can afford to pay for their prescription. That still leaves millions struggling to afford them, and means that drug pricing will remain contested. • With many pharma firms buying in drugs, rather than developing them in-house, there is a strong case that drug prices currently have more to do with the cost of deal making than the cost of innovation.
  12. 12. POTUS’s plan to lower costs will not work • The president’s plan, which he called the “most sweeping action in history to lower the price of prescription drugs”, lacks potency. • Many of Mr. Trump’s suggestions need legislation, which is unlikely now. • Mr. Trump also repeated an argument beloved of pharmaceutical companies—that foreigners are to blame for America’s high prescription- drug prices. Even if this proves possible it would not cut Americans’ drugs bills by a cent. • That is because the price of drugs would remain at what the market will bear. • Put another way, prices would continue to be largely set by pharma companies. • If America really wanted cheaper drugs, it would copy what European countries do, and refuse to buy drugs that do not offer good clinical value for money.
  13. 13. Drug prices are increasing • According to a new IQVIA report, U.S. cancer drug spending climbed to almost $50 billion last year, about twice the $24.8 billion spent in 2012. • Median U.S prices for new therapies climbed above $160,000 last year, more than double the median $79,000 launch price in 2013. • By 2022, payers and patients will be shelling out $90 billion to $100 billion on cancer therapies in the U.S., fully half the $180 billion to $200 billion in spending expected worldwide that year, the report said.
  14. 14. Dug Companies: Delaying Competition • Makers of brand-name drugs called out by the Trump administration for potentially stalling generic competition have hiked their prices by double-digit percentages since 2012 and cost Medicare and Medicaid nearly $12 billion in 2016, a Kaiser Health News analysis found. • Drug companies that may have engaged in what FDA Commissioner Scott Gottlieb called “shenanigans” to delay the entrance of cheaper competitors onto the market have indeed raised prices and cost taxpayers more money over time. • A KHN analysis found that 47 of these drugs cost Medicare and Medicaid almost $12 billion in 2016. Source: https://medcitynews.com/2018/05/drugmaker-shenanigans-delaying-cheaper-competitors/
  15. 15. Drug Company Profit Margins • Pharmaceutical companies have some of the highest profit margins in the world, a distinction that has earned the industry criticism from both politicians and consumers, who often complain about the high prices of prescription drugs. • Revenues and profit margins in the industry are on the rise. "pharmaceutical and biotechnology sales revenue increased from $534 billion to $775 billion between 2006 and 2015,". "Additionally, 67 percent of drug companies increased their annual profit margins during the same period—with margins up to 20 percent for some companies in certain years." Spending on research and development increased as well, to $89 billion in 2014, from $82 billion in 2008. • The average net profit margin for drug companies, including pharmaceuticals and biotech, was about 12.5 percent to 14 percent, according to a January 2018 study by New York University’s Stern School of Business. • Many companies have margins far greater than that. Gilead Sciences and Amgen are among the most profitable drug makers, with net margins of about 35 to 45 percent. Source: November 2017 report by the U.S. Government Accountability Office
  16. 16. Medicare drug prices soar at 10 times rate of inflation • The prices of the 20 most commonly prescribed brand-name drugs for seniors have risen nearly 10 times more than the annual rate of inflation over the past five years, according to a congressional report said. • "Soaring pharmaceutical drug prices remain a critical concern for patients and policymakers alike," the report concluded. "Over the last decade, these significant price increases have emerged as a dominant driver of U.S. health care costs -- a trend experts anticipate will continue at a rapid pace." Source: https://www.hsgac.senate.gov/media/minority-media/breaking-brand-name-drugs- increasing-at-10x-cost-of-inflation-mccaskill-report-finds
  17. 17. Pharma industry’s return on R&D investment falls sharply • The world’s 12 biggest drug companies are making a return of just 3.2 per cent on their research and development spending this year — down from 10.1 per cent in 2010, according to Deloitte’s annual survey of pharma R&D investment. • At the same time the average cost of bringing a drug to market has soared to a record $2bn from $1.5bn in 2016 and $1.2bn in 2010, when the professional services firm launched its pharma survey. • Technological advances such as automation and artificial intelligence have the potential to improve R&D productivity. • A group of four younger and slightly smaller biotech companies which Deloitte added to the survey in 2015 — Celgene, AbbVie, Biogen and Gilead — far outperformed the top 12. Their average return rose to 11.9 per cent in 2017 from 9.9 per cent in 2016. • These smaller companies do not have the legacy infrastructure of the bigger pharma companies. Their performance is a combination of the way they focus on value and their ability to act more nimbly.
  18. 18. R&D versus Marketing • Americans spent $329.2 billion on prescription drugs in 2013. • That works out to about $1,000 per person in the U.S. Source: https://www.washingtonpost.com/news/wonk/ wp/2015/02/11/big-pharmaceutical-companies- are-spending-far-more-on-marketing-than- research/?utm_term=.0907759f5209
  19. 19. Humira, the best-selling prescription drug in the world • The price of Humira, an anti- inflammatory drug dispensed in an injectable pen, has risen from about $19,000 a year in 2012, to more than $38,000 today, per patient, after rebates, according to SSR Health, a research firm. • That’s an increase of 100 percent. • Humira, which accounted for nearly two-thirds of AbbVie’s $25.6 billion in revenue in 2016. • The industry has argued that high American prices are needed to fund drug development, but a 2016 study published by the Journal of the American Medical Association found “no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.”
  20. 20. Pharma mergers result in fewer new medicines • Pharma company mergers are reducing the number of new medicines coming to market. • Yale and London Business School researchers determined that 5% more drugs would become available each year if not for what they refer to as "killer acquisitions.” • Companies are shown to be less likely to continue development of acquired drugs than of in-house projects. Particularly when the acquired product could compete with an in-house effort. Source: https://www.axios.com/killer- acquisitions-pharma-1527263682- 03398c78-1a50-475e-9784- 9623ec104c02.html
  21. 21. Mergers lead to cuts in R&D • “They are cutting quite deep in R&D and it is not clear if the amount of money they are saving is going to be beneficial or harmful,” said John Rountree, a partner at pharmaceutical strategy consulting firm Novasecta.
  22. 22. Pharma and the new tax rebates… • U.S. Sen. Tina Smith wants the pharmaceutical companies to tell her what they plan to do with the cash the quintet will realize from the Tax Cuts and Jobs Act. • Axios reported that top pharmaceutical companies have announced significant so called 'buybacks,' which benefit shareholders by driving up the value of their stock. • This suggests that pharmaceutical companies have used these tax breaks to enrich investors, a decision that comes at the expense of lowering the price of prescription drugs, investing in research and development that could lead to new cures, or passing along savings to consumers." Source:https://www.thestreet.com/story/14510651/1/senator-asks- big-pharma-what-they-will-do-with-cash-from-tax-cuts.html
  23. 23. It’s all about Maximizing Shareholder Value • From 2006 through 2015, the 18 drug companies in the Standard & Poor’s 500 index spent a combined $516 billion on buybacks and dividends. • This exceeded by 11 percent the companies’ research and development spending of $465 billion during these years. • Two examples are Gilead Sciences, which spent $27 billion on buybacks versus $17 billion on research, and Biogen Idec, which repurchased $14.6 billion in stock and spent $13.8 billion on research and development. • The key cause of high drug prices, restricted access to medicines and stifled innovation, is a social disease called ‘maximizing shareholder value, ’” • Pharma CEO’s have made Wall Street their number one customer at the expense of patients.
  24. 24. Profiting from healthcare • With health-care firms making excess profits of $65bn a year. Surprisingly, the worst offenders are not pharmaceutical firms but an army of corporate health- care middlemen. • The excess profits of the health-care firms are equivalent to $200 per American per year, compared with $69 for the telecoms and cable TV industry and $25 captured by the airline oligopoly. • As the drug industry has come back down to earth, the returns of the 46 middlemen on the list have soared. Fifteen years ago they accounted for a fifth of industry profits; now their share is 41%. Health-insurance companies generate abnormally high returns, but so do the wholesalers, the benefit managers and the pharmacies. In total middlemen capture $126 of excess profits a year per American, or about two-thirds of the whole industry’s excess profits. Express Scripts earns billions while having less than $1bn of physical plants and no disclosed investment in R&D. This year the combined profits of three wholesalers that few outsiders have heard of are expected to exceed those of Starbucks. Source: https://www.economist.com/news/business/21738934-it-not-pharmaceutical-companies-which-firms-profit- most-americas-health-care-system
  25. 25. The Difference between List Price and Net Price? • The reality is very few people actually pay the list price, and the amount of money actually received by the drug company – the net price – is typically much lower. • Discounts vary, but can result in significant discounts of as much as 50% or greater depending on the program. When the government is the payer, the vast majority of purchases have mandated rebates and discounts of significant amounts. Source:https://www.drugcostfacts.org/prescription-drug-costs
  26. 26. Medicare and drug prices: The future? Let Medicare Negotiate Prescription Drug Costs for Consumers • Numerous thought leaders are calling for allowing Medicare to negotiate prescription drugs for Americans 65 and older. • “There is growing consensus to allow Medicare, the largest purchaser of prescription drugs, to negotiate on price“ This will help bring prices down tremendously.”
  27. 27. PBM’s: Villain’s or Partners? • PBMs are able to negotiate prices through both upfront discounts and rebates following sales. • The new treatments for hepatitis C are a good example. A curative drug was approved a few years ago but was incredibly expensive. When a second curative treatment emerged, Express Scripts told the first manufacturer that it would not put its drug on Express Scripts formulary unless the company lowered the price to that of the second drug. The PBM advertised this negotiation as an example of its benefit to patients. • The higher the price of the drug, the higher the PBM fee at the pharmacy. So they don’t have an incentive to drive upfront prices down as much as they can. They are taking fees based on the list price, but the net price that the PBM is paying for the drug is much lower than that because of rebates. • Pharma companies now anticipate steep discounts and rebates when they set their list prices. As a result, they set list prices higher so that the eventual negotiated price will be as high as possible.
  28. 28. PBM’s: Increasing the costs? • PBMs quietly became an integral part of the pharmaceutical supply chain following the passage of the Medicare Modernization Act in 2003. • PBMs have become a cause for alarm because it’s alleged they drive up drug prices and interfere with patients’ access to medications. • In 2015, Express Scripts, the largest PBM-only company in the U.S., reported a profit of more than $660 million, from sales exceeding $25 billion. • How PBMs operate has remained mostly hidden.
  29. 29. About those rebates… • Prescription drug manufacturers dole out billions of dollars in rebates every year, but these savings don't usually trickle down directly to consumers. • Like most things in America's health care system, it's exceedingly difficult to know just how much a medication costs or what different players in the supply chain pay or earn along the way. • Insurers received $89 billion in rebates, reducing their spending on prescription drugs to $279 billion in 2016, according to estimates from Altarum. (This doesn't include the portion of the rebate that pharmacy benefit managers keep, which isn't disclosed.)
  30. 30. Then there are administrative costs • Despite efforts to control healthcare costs, the U.S. is still spending about twice as much as other high-income countries on medical care, according to a new JAMA report. • Administrative costs accounted for 25 percent—or more than $200 billion—of total hospital spending in the United States. • The U.S. is also spending much more on pharmaceutical costs. The U.S. spending on pharmaceuticals per capita was $1,443 compared to $466-$939 for the others.
  31. 31. Costs of hospital stays • Hospital stays are expensive — adding up to more than $384.5 billion a year in the US, according to recent data. The average hospital stay costs over $10,000, but the amount varies widely depending on the medical condition. • Medicare covered 46% of that cost, with Medicaid pitching in 17%. Private insurance paid for 28% of the cost, while 5% went to patients who were uninsured.
  32. 32. How to Lower Health Care Costs Give Patients and Health Care Consumers More Information • It can, for example, cost 600 percent more to have a colonoscopy in one location than another. The problem is that patients usually don’t know about local price variations because they’re generally not given cost information by health care providers or insurers. Lower the Number of Medical Tests for Patients • Dr. Atul Gawande, a surgeon, writer, public health researcher, mentioned a study of more than 1 million Medicare patients asking how often they received one of the 26 tests or treatments that were “widely recognized to be of no benefit or to, in fact, be of outright harm.” Up to 42 percent of patients received unnecessary tests in one year, Gawande said. His mother was one of them.
  33. 33. In summary… 1. There are a lot of reasons for the high cots of healthcare and prescription drugs. 2. Our healthcare system is layered in secrecy with too many layers between patients and quality care. 3. Pharmaceutical companies raise prices on existing medications too much and have made shareholders their primary customer. 4. PBM’s are coming under fire but many have promised to pass on drug rebates to consumers. 5. Our own poor health is also costing us billions of dollars in preventable disease. 6. It’s going to take a concerted effort to lower healthcare costs.