Express Scripts says prescription drug spending slowed in 2016; but compared to what, a speeding train?

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The News:

According to a recent report released by Express Scripts Holding Co. (St. Louis MO), the average list price of the most commonly used branded drugs in the US increased nearly 11% in 2016. However, the pharmacy benefit manager (PBM) noted that it was able to hold the 2016 growth rate in prescription drug spending to 3.8%, a 27% decrease from the prior year, with costs for employers up just 2.5% across all prescription medicines.

@ExpressScripts reports average price of branded drugs in the US increased 11% in 2016 Click To Tweet

“In a year where the issue of high drug prices was No. 1 on the list of payer and policy maker concerns, the data show that our solutions protected our clients and patients,” commented Glen Stettin, chief innovation officer at Express Scripts.

According to FirstWord Pharma, the company indicated that patients of pharmacy plans it manages paid 14.6% of the total cost of a prescription medication in 2016, versus 14.8% in the previous year.

In an effort to tackle the rising cost of prescription drugs, Express Scripts launched the Inflammatory Conditions Care Value Program last year, aimed at reducing costs and improving care in the treatment of inflammatory conditions, says FirstWord.

Express Scripts noted that one of every five dollars spent on prescription drugs was for medication to treat an inflammatory condition or diabetes. The PBM said that AbbVie Inc.’s (North Chicago) Humira (adalimumab) and Amgen Inc.’s (Thousand Oaks CA) Enbrel (etanercept) were major trend drivers for the class, with unit cost increases between 10% and 18% in 2016.

“Rebates do not raise drug prices, drugmakers do,” remarked Stettin.

US President Donald Trump has called the prices of prescription medicines “astronomical,” adding that he will begin efforts to “get the prices down.” Some pharmaceutical companies have already pledged to limit price rises on their products, with Allergan and Novo Nordisk A/S (Bagsvaerd DNK) both targeting annual increases of less than 10%.

Express Scripts, which is also the target of short-seller Citron Research’s Andrew Left, said it saved its members $1.3 billion in 2016. Mr. Left in December called Express Scripts the “culprit behind pharmaceutical price gouging”, and added that the company benefited from the “opaqueness” of drug pricing.

Not stopping with that charge, Left called Express Scripts the “Philidor of the pharma industry.” (The former CEO of the now-defunct mail-order pharmacy Philidor is facing criminal charges for fraud and conspiracy.) Left’s tweet dropped Express Scripts’ shares by more than 10% on December 8, 2016.

Steve’s Take:

The problem of rising drug costs certainly is not lost on President Donald Trump. He has been aggressive about singling out pharmaceutical companies for “getting away with murder” with their “astronomical” prices. And he campaigned on a pledge to bring costs down. But then when meeting face-to-face with top pharma execs he tells them,

“You can’t get approval for the plant, and you can’t get approval for the drug; other than that, you’re doing fantastic.”

So in the face of a national backlash on drug prices, a handful of drugmakers have pledged to limit their prices on branded prescription drugs to 10% or less this year. As it turns out, that is roughly how much they increased last year anyway, FiercePharma points out.

Express Scripts, the largest US PBM, said that its calculations show brand-name list price increases in 2016 were nearly 11%. The PBM, which is known for aggressively fighting drugmakers on the prices of some drugs, said it managed to keep the average increases in unit prices to 2.5%. It said that drug spending increased 3.8%, which included both prices and utilization.

Of course, the vast majority of prescriptions filled in the US are for generic drugs, and prices for those actually decreased. The cost of the most commonly used generic drugs fell 8.7% last year, Express Scripts said, a fact that was seen in the bottom lines of generic producers and wholesalers alike.

Still, the amount of money that Americans paid for their drugs went up. The PBM said that across all of its plans, the average patient out-of-pocket cost for a 30-day prescription was $11.34 in 2016, about 10 cents per prescription more than the year before.

To no one’s surprise, a national debate over drug pricing has exploded in the last two years as US the industry’s pricing practices have been exposed. The high prices for new specialty drugs like cures for hepatitis C and cancer, as well as constant price increases on older branded drugs and even some generics that have multiple producers, have drawn pushback from PBMs, and attacks from politicians and federal investigations. These outcries have put enough pressure on drugmakers that some have even felt the need to respond.

But here’s the point that Express Scripts makes about pricing to effectively pull the rug out from under big, little and in-between Pharma.

The PBM says, “based on a benchmark set in 2008, while the prices for commonly used consumer household goods have gone up 14%, the cost of commonly used prescription drugs has increased 208%.”

While the noise around pricing has drawn the price pledge from some drugmakers, CNBC reporter Meg Tirrell pointed out that the industry made a similar promise nearly 25 years ago when then-President Bill Clinton offered up a plan to revamp how the government paid for drugs.

According to a New York Times story at the time, “the drugmakers say the President is unfairly singling them out. They assert that his proposals would cripple research budgets, delaying the discovery of cures for scourges like AIDS, cancer and Alzheimer’s disease.”

Sound familiar, all these years later?

Trump’s plans to address the drug-price issue still live in a blurry, smoky realm, featuring a combination of lowering taxes, ramping up competition, and deregulating the drug approval process. In a statement posted on Facebook, he suggested that bringing big pharma manufacturing back to the US would lower prices. The problem with that last move, as experts have noted, is that it could actually make drugs more expensive, not less.

As Vox has pointed out numerous times, Trump’s precise plans for pharma are more confusing than clarifying at this point. But as he moves forward, if he really wants to make medicines more affordable for Americans, he should focus on the following.

In countries with single-payer health systems, governments exert much more influence over the entire healthcare process. These governments usually create an agency that negotiates directly with pharmaceutical companies. The government sets a maximum price that it will pay for a drug, and if the company doesn’t agree, it simply loses out on the entire market.

This puts drugmakers at a disadvantage, driving down the price of drugs. It also allows these countries’ regulators to more closely scrutinize the relative quality of the drugs they’re covering which also drives costs down, as Vox explains:

“These agencies will typically make decisions about whether these new drugs represent any improvement over the old drugs–whether they’re even worth bringing onto the market in the first place. They’ll pore over reams of evidence about drugs’ risks and benefits.”

If they determine that a drug isn’t worth including on their formulary, or that it’s priced too high, this also gives them the upper hand in price negotiations, Harvard’s Amitabh Chandra told Vox.

The US is exceptional (and seemingly obtuse) in that it doesn’t do any of these things. Instead, America has stubbornly taken more of a free market approach to drugs. Pharmaceutical companies haggle separately over drug prices with a variety of private insurers across the country.

Meanwhile, Medicare, which is the nation’s largest buyer of drugs, is actually barred from negotiating drug prices. Instead, Medicare is required to cover almost every drug the FDA approves for the market. That gives pharma much more leverage, and also means there’s no quality control over which drugs get covered and which don’t.

So drug companies in the US do what any other profit-maximizing company does–they try to get the highest prices possible without going so high that no one will buy them. And they do this because they can.

“Drug companies in the US set the prices at whatever the market will bear,” said Aaron Kesselheim, an associate professor of medicine at Brigham and Women’s Hospital. “Unless you change that, all you’re going to do is get more drugs on the market that will be more expensive.”

One way to fix this would be to allow Medicare to use its vast bargaining power to negotiate drug prices, which would have a ripple effect on the rest of the market, says Vox. On the campaign trail, Trump originally proposed to do just that. But as Matt Yglesias notes, Trump’s recent statements and policy actions suggest he may be walking back on this promise.

Secondly, Trump talks a lot about increasing competition to lower drug prices. But if he really wanted to do that, he should focus on increasing competition among generic products.

The rationale behind this isn’t impenetrable. After a drug gets FDA approval, its manufacturer enjoys a period of monopoly through patent protection–which means it can generally demand higher prices. Once that exclusivity period ends, generic drugmakers can descend upon the market, offering low-cost alternatives.

These drugs are drastically cheaper than their brand-name counterparts, mainly because generic drugmakers piggyback on all the research and development that was done by the original drugmaker. This means generic manufacturers don’t bear the same R&D costs. They also don’t spend much on marketing–a huge cost.

Lastly, Trump has repeatedly stated that regulations get in the way of innovation. But as Vox points out, drug developers don’t cite regulations as the cause of a slowdown in their innovation process. Instead, they say it’s extremely hard to find new and safe drugs that actually deliver on their promises.

So, in Trump’s jumbled pronouncements about drug pricing, he seems to be misidentifying what and where the barriers for innovation and cost drivers in the system really are. He’s also suggested doing things that will certainly increase the cost of drugs here in the US, Harvard’s Chandra added.

“The idea of bringing [pharmaceutical manufacturing] jobs back to the US is not really going to do anything. Manufacturing in the US will be more expensive than manufacturing in India–it would be a legitimate (and necessary) reason to increase prices” according to Chandra.

While drug prices continue to rise far faster and greater that practically anything else labeled consumer household goods, all the bluster on Capitol Hill, from the White House and mainstream media amounts to a lot of sound and fury, signifying essentially nothing we haven’t heard before.

Steve's Take: Leaders in Washington will have to address the #drugprice problem Click To Tweet

To address the price problem here in the US we’re going to need real change–along the lines of the suggestions mentioned above. That will require guts. I’m not pointing to our pharma industry because its duty to maximize shareholder value will always come first. I’m looking at our leaders in Washington who, up until now, haven’t shown me anything.