With the New Year came the announcement that drug prices for the year had climbed an average of 5.8%. No big surprise, right?
But the devil is in the details. And the key detail is this: The year in question is 2020, not 2019.
That’s right, it’s not even February, and already this year drugmakers have raised prices by more than the average American’s wage has increased over the past two years. Yeesh.
Okay, now that I have your attention, I’ll admit I’m being a little coy. As a practice, pharmaceutical companies increase prices at the beginning of each year. So, these hikes should be it for the rest of the year.
Still, 5.8% doesn’t sound like chicken feed. It’s more than double the rate of overall inflation. Yet it’s actually a bit below what companies did in 2019, when they upped drug prices by more than 6%.
The increases affect list prices, which are set by manufacturers. The prices most patients ultimately pay are lower, as a result of rebates, discounts and insurance payments. Drugmakers say that, in fact, the net amount they’ll recover — once they’ve paid higher rebates to insurers and pharmacy benefit managers — will be the same as in 2019.
Playing politics
Even if you take at face value the claim that this month’s price hikes don’t grow drugmakers’ bottom lines, you’ll have a hard time finding someone shedding tears for them. Look no further than Sen. Elizabeth Warren in Tuesday’s Democratic debate (“the drug industry has figured out how to manipulate this industry, to keep jerking prices up and up”) or President Trump’s Twitter feed (“Hard-working Americans don’t deserve to pay such high prices for the drugs they need.”)
Yes, drugmakers have succeeded in doing the impossible in today’s political climate: They’ve united the left and right.
Unsurprisingly, the two parties can’t seem to agree on how to fix the problem. In December, the Democrat-controlled House voted to empower the federal government to negotiate prices with pharmaceutical companies. In the unlikely event the bill makes it through the Republican-controlled Senate, President Trump has vowed to veto it. Instead, he favors measures like mandatory price disclosures and importing drugs from Canada.
New models
In response to this mounting pressure, drugmakers are testing new models to distribute and pay for their most expensive treatments.
Novartis has launched a free, lottery-style program to provide a limited number of patients with Zolgensma, a $2.1 million gene therapy that’s a one-shot cure for a deadly inherited disease. Patient groups have criticized the method as “too crude” a way to distribute a lifesaving treatment.
For those with insurance, Novartis is offering carriers payment plans for the pricey gene therapy. Rather than the traditional approach of paying the entire cost of the therapy up-front, insurers also have the option to spread payments over five years.
Another company in the rare disease space, Alnylam Pharmaceuticals, is taking a different tack. The company will only charge full value — $600,000 — for its drug if a patient experiences benefits like those seen in clinical trials. It will also drop the price tag for insurers if more patients than anticipated use the drug.
These novel approaches are not limited to rare diseases. Sanofi has rolled out a subscription plan for insulin, at a cost of $99 per month.
Looking for cover
A cynical observer might suggest that drug companies are only looking for cover, taking baby steps that have little impact on their bottom lines. Still, in a political climate where Democrats and Republicans can’t seem to work together on anything, it might just be enough to keep legislators from lowering the boom.
In the meantime, with annual U.S. spending on prescription drugs now at $335 billion, the issue will continue to roil voters. So, in the coming year, expect to hear all manner of proposals to solve the problem, including:
• Medicare for all
• Allowing the government to negotiate Medicare drug costs with manufacturers
• Importing drugs from Canada
• Caps on patients’ out-of-pocket costs
• Government manufacturing of generic drugs
Would any of it work? Like everybody else, I haven’t the faintest idea. But until we try something, we shouldn’t expect anything to change.
