Aug. 6, 2018
Dive
Brief:
- Prescription drugs could account
for nearly 15% of all money spent on healthcare in the U.S., according
to a recent report published
in Health Affairs that offers a counterpoint to the frequent industry
claim only 10% of spending goes toward pharmaceuticals.
- Three researchers
from Memorial Sloan Kettering's Center for Health Policy and Outcomes
estimated revenues retained at each step in the drug supply chain to place
total U.S. spending on pharmaceuticals at $480 billion in 2016.
- Drug manufacturers
"captured" $323 billion, or two-thirds, of that total. Pharmacy
benefit managers — most recently the target of criticism over their
role in rising drug costs — retained only $23 billion in gross profits,
suggesting reforms targeted only at PBMs may have limited impact on prices
and overall spending.
Dive
Insight:
Estimating
the total money spent on drugs in the U.S. isn't an easy task due to a
convoluted distribution system and limited transparency into contracts between
the intermediaries that bring a medicine from drugmaker to patient.
The
result is a wide range of approximations, each of which counts spending in a
different way. Iqvia, a consulting and contract research group, publishes
widely cited estimates of both gross spending on drugs at invoice prices and
revenue reported by drugmakers after adjusting for rebates.
In
2016, those figures came to $450 billion and $323 billion, respectively. The
researchers from Memorial Sloan Kettering used the latter total as a starting
point for retained revenue by drugmakers, and then estimated gross profits for
each of the other players in the drug supply chain.
Yu, Atteberry, and Bach. "Spending On Prescription Drugs In
The US: Where Does All The Money Go?"
Credit: Health Affairs Blog
The
result is what the researchers contend to be a better picture of the overall
market size for drugs, including purchase, distribution and payment.
Measuring
their figure against the CMS estimate of $3.3 trillion in national health
expenditures for 2016 brought the researchers to their conclusion that drugs
account for nearer to 15% of spending, rather than 10%.
In
publishing their findings, the researchers don't draw any conclusions around
where reforms to reduce spending may be best aimed. They do, however, hint that
breaking down spending by each market player could help inform policy.
"A recent
policy focus on the supply chain suggests that understanding those consequences
will be important—particularly in light of recent calls by Food and Drug
Administration Commissioner Scott Gottlieb for greater transparency in price
negotiations involving PBMs, distributors, drug stores, and payers; appeals
by the pharmaceutical industry and government to limit the scope of the 340B
program; and deliberations by CMS to begin instituting point-of-sale rebates to
reduce the out-of-pocket burden on patients," they write.
The
Trump administration has recently focused on the role played by rebates in
increasing drug prices and, by consequence, drug spending. HHS Secretary Alex
Azar has made rebates the target of recent speeches, and a proposed rule filed
by the White House appears to seek elimination of a legal exemption under which
rebates don't fall afoul of anti-kickback statutes.
Recent
comments from top executives at pharma companies, including Pfizer and AbbVie,
have made clear that the pharma industry is currently contemplating a world in
which rebates might play a reduced role. Pfizer CEO Ian Read, for example, said
on a recent earnings call that he believed the U.S. would eventually move away from rebates completely.
But,
as the new research suggests, reducing the role played by PBMs — and targeting
the money they collect as supply chain middlemen — might not make as much of a
dent on drug spending as imagined.
https://www.healthcaredive.com/news/drugs-account-15-percent-total-us-healthcare-spending-health-affairs/529427/
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