Competition doesn't always translate into cheaper drug prices

Countering the congressional clamor for more competition and negotiations to reduce prescription drug prices in the U.S., the biopharma industry is providing some context that shows competition among branded drugs and tough negotiations often translate into bigger rebates, not cheaper prices for patients.

A new Berkeley Research Group (BRG) study funded by the Pharmaceutical Research and Manufacturers of America found that as competition has increased in the biopharma marketplace in recent years, brand manufacturers have been paying more in discounts and rebates to health plans and pharmacy benefit managers (PBMs) to secure preferential formulary placement, which improves patients' access to their products.

In looking at the total prescription drug spend in the U.S. and then tracing it through the supply chain, the study noted that nearly 39 percent of the nation's initial gross expenditures for drugs in 2015 made its way to brand drug manufacturers. That's down from more than 40 percent two years earlier. Generic drug manufacturers' share of those gross expenditures was about 19 percent in 2015, compared with a more than 21 percent share in 2013.

However, the share accounting for PBM rebates and fees, government discounts and rebates, patient assistance programs (PAPs), group purchasing organization fees and pharmacy, provider and wholesaler margins went up – from 38 percent in 2013 to more than 42 percent in 2015.

"The results were pretty eye-opening," Aaron Vandervelde, co-author of the study and managing director of BRG, told BioWorld Today. Previous studies of drug expenditures haven't given the complete story, he said. He said he's hoping this study can set the stage and better inform the national discussion on drug pricing.

A narrow focus in the past on list price, or wholesale acquisition cost (WAC), is partially due to the murkiness surrounding the drug pricing process. While virtually no one pays a drug's list price, it serves as a starting point in private negotiations between drug companies and payers. The process leaves the public, and Congress, pretty much in the dark when it comes to what a drug's actual price is and who's pocketing the profits. All patients know is how much they're paying out of pocket. And that's the message lawmakers hear from their constituents.

The lack of transparency resulted in considerable congressional consternation a few months ago when members of a House committee grilled Mylan Inc. CEO Heather Bresch over her company's recent price increases for a two-pack of Epipen (epinephrine) Auto-injectors. Several lawmakers seemed incredulous when Bresch explained that while the WAC for an Epipen two-pack is $608, Mylan receives $274 for each pack – about 45 percent of the list price. The rest is paid out in rebates and fees, she said. (See BioWorld Today, Sept. 23, 2016.)

WHO'S BENEFITING?

Rebates and discounts benefit patients indirectly through lower insurance premiums, but they don't directly reduce the amount patients must pay in deductibles, nor do they necessarily reduce co-insurance and copayments at the point-of-sale. "As a result, manufacturers also offer cost-sharing assistance to many patients, which further improves access to medicines," the BRG study pointed out.

The study found that the rebates and fees negotiated with PBMs and health plans for brand prescription drugs increased nearly 74 percent – from $33.2 billion in 2013 to $57.7 billion in 2015. In that same time period, brand manufacturers realized a 23 percent increase in their net – from $177.5 billion to $218.6 billion.

Payers aren't the only ones getting a bigger piece of the biopharma dollar, as government-mandated discounts and fees have grown under the Affordable Care Act, which expanded both Medicaid and the 340B programs. For instance, brand manufacturers paid a total of $28.3 billion in Medicaid rebates in 2015, up 62 percent from the $19.1 billion they paid in 2013.

"Many of these discounts are not plainly visible, leading to misperceptions about the relative share of gross and net drug expenditures realized by brand manufacturers," according to the study. An informed discussion on drug pricing must be "supported by an understanding of the role played by all entities involved in the distribution and purchase of medicines and a recognition of the discounts that lead to far lower net spending than is commonly reported based on invoice price figures," it added.

The report also revealed an anomaly for patients that may need to be examined further. Even as more patients have access to insurance or Medicaid coverage, manufacturers are seeing an increased demand for PAPs. Their expenditures for the cost-sharing programs for patients shot up 64 percent from 2013 to 2015 – from $4.2 billion to $6.9 billion.

That increase seems counterintuitive with the rise in insurance and Medicaid coverage, Vandervelde said, as the trends appear to be going in opposite directions.

To read the original BioWorld report, please click here