The Truth Behind Prescription Drug Pricing
Prescription medicines account for only about 10% of healthcare spending. Surprisingly, drug pricing often takes center stage in concerns over rising healthcare costs.
Drug prices are an easy target, as they are the most transparent cost in the healthcare equation.
The ultimate price paid for a doctor’s visit, surgical procedure or hospital stay is generally lost in a fog of complex bills submitted, resubmitted, and adjusted over long stretches of time.
Prescriptions, on the other hand, are issued, filled, and patient payment made within a short period of time.
The furor over medicine prices is unfortunate because it is misplaced. There are more savings to be had in the other 90% we spend on healthcare.
In 2016, for example, only an estimated 13% of the rise in medical insurance premiums was due to prescription medicines—56%, on the other hand, was attributable to hospital and professional costs.
Biomedical research and development is among the most innovative and competitive sectors of our economy, drawing talent and investment into Connecticut.
In terms of savings, there is much more to mine from other components of the healthcare sector.
Debate over medicine prices is distorted as well by a focus on “list” or “invoice” prices, which overstate what payers ultimately pay for medicines.
Biopharma companies typically discount prices and issue rebates. In 2015, for example, branded medicine invoice prices rose by 12.4%, but the actual, estimated net price growth in prescription drugs was only 2.8%.
Each biopharma job pays an average annual salary of $157,577 and generates $652,033 in economic output.
In 2015, overall healthcare spending rose by an estimated 6.8%. That same year, CVS Health saw its prescription medicine costs rise by only 5%.
New medicines are hugely valuable, not only to patients, but to our healthcare system.
Reducing Treatment Costs
As expensive as they may seem, new medicines reduce treatment costs. Curing Hepatitis C with an oral medicine is vastly cheaper than funding a patient’s liver transplant and years of follow-on drug therapy to keep organ rejection in check.
Barring the introduction of new medicines to treat or cure Alzheimer’s disease, by 2050 the cost to the healthcare system of caring for Alzheimer’s patients will rise from $226 billion to $1.1 trillion.
Medicine pricing is, in fact, not very complicated.
Each new medicine reflects an investment of $2.6 billion in research and development to bring a drug through FDA approval to pharmacy shelves.
In order for any organization—private company or otherwise—to be able to spend so much and, hopefully, repeat the process, it needs to recoup those costs over the short life of a new medicine’s patent (88% of prescriptions are filled by non-patent protected generic drugs).
New medicine research and development buys a lot—treatments and cures to be sure, but also very effective economic development.
Each biopharma job pays an average annual salary of $157,577 and generates $652,033 in economic output, making Connecticut biopharma a pillar of our tax base and a key driver of the 21st century economy.
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