CBO re­port high­lights ris­ing cost of brand-name drugs in Medicare as Con­gress con­sid­ers price ne­go­ti­a­tions

As the De­moc­rats’ big shot at ma­jor drug pric­ing re­form hangs in the bal­ance, the Con­gres­sion­al Bud­get Of­fice has re­leased a new re­port show­ing the av­er­age net price of brand-name pre­scrip­tion drugs in Medicare Part D more than dou­bled from 2009 to 2018.

Over­all, the av­er­age net price of a pre­scrip­tion — the cost af­ter dis­counts and re­bates giv­en to pri­vate in­sur­ers and fed­er­al pro­grams — fell from $57 in 2009 to $50 in 2018 in the Medicare Part D pro­gram and from $63 to $48 in the Med­ic­aid pro­gram, ac­cord­ing to the CBO’s lat­est pre­scrip­tion drug spend­ing, use and pric­ing re­port. That par­tial­ly re­flects the in­creased use and falling av­er­age price of gener­ic drugs.

How­ev­er, the av­er­age net price of brand-name drugs sky­rock­et­ed in that time frame, ris­ing from $149 to $353 in Medicare Part D and from $147 to $218 in Med­ic­aid.

Sen­ate Fi­nance Com­mit­tee Chair Ron Wyden (D-OR) said in a state­ment that the re­port “dri­ves home the ur­gent need” for change.

It comes as Sen­ate De­moc­rats look to forge a bill that would al­low Medicare to ne­go­ti­ate prices for some of the most ex­pen­sive drugs, force drug­mak­ers to pay re­bates if their prices rise faster than in­fla­tion, cap the cost of in­sulin, and cre­ate an out-of-pock­et spend­ing cap for se­niors, among oth­er pro­vi­sions.

But with­out sup­port from Sen. Joe Manchin — who de­railed Dems’ ef­forts to pass the same pro­vi­sions as part of the Build Back Bet­ter Act just be­fore Christ­mas — or any Re­pub­li­cans, that leg­is­la­tion re­mains un­like­ly to pass.

“It’s time to give Medicare the tools to fight back against high prices,” Wyden said in re­sponse to the CBO’s re­cent re­port. From 2010 to 2017, net prices for brand-name drugs rose by an av­er­age of 6.3% faster than in­fla­tion per year, ac­cord­ing to his of­fice.

Sean Dick­son

Sean Dick­son, di­rec­tor at the West Health Pol­i­cy Cen­ter in Wash­ing­ton, DC, cred­its in­creas­es in spend­ing to high­er launch prices and longer pro­tec­tions from gener­ic com­pe­ti­tion.

“We’re see­ing a lot more ag­gres­sive de­fense of these mo­nop­oly drugs, as brand man­u­fac­tur­ers have fo­cused on ek­ing out as much mon­ey as they can from ex­ist­ing prod­ucts,” he said.

Na­tion­wide spend­ing on pre­scrip­tion drugs has seen a rel­a­tive­ly steady in­crease over the last few decades, with a few ex­cep­tions. It saw a con­sid­er­able uptick af­ter 1995 as a num­ber of drugs reached block­buster sta­tus, in­clud­ing statins for high cho­les­terol, ACE in­hibitors for high blood pres­sure, pro­ton-pump in­hibitors for acid re­flux and gas­tric ul­cers, and an­ti­de­pres­sants and an­tipsy­chotics for men­tal ill­ness­es.

When those patents ex­pired, low­er-priced gener­ics were in­tro­duced, around the same time that the Medicare Part D pro­gram was cre­at­ed in 2006. As a re­sult, per capi­ta spend­ing on pre­scrip­tion drugs lev­eled off at about $940 in the mid-2000s and fell to $900 by 2013 (all es­ti­mates of drug spend­ing and prices in the re­port are ex­pressed in 2018 dol­lars). There was an­oth­er uptick be­tween 2013 and 2015, which co­in­cid­ed with the in­tro­duc­tion of ex­pen­sive he­pati­tis C drugs.

Over­all, na­tion­wide spend­ing on pre­scrip­tion drugs in­creased from $30 bil­lion in 1980 to $335 bil­lion in 2018 (ex­pressed in 2018 dol­lars), the CBO said. Over that pe­ri­od, re­al per-capi­ta spend­ing on pre­scrip­tion drugs in­creased more than sev­en­fold, from $140 to $1,073. Spend­ing on pre­scrip­tion drugs grew from $74 bil­lion in 2009 to $120 bil­lion in 2018 in the Medicare Part D pro­gram and from $18 bil­lion to $32 bil­lion in Med­ic­aid.

In re­cent years, Dick­son said drugs have tak­en price in­creas­es above the rate of in­fla­tion and may re­bate some of those in­creas­es back to in­sur­ance com­pa­nies through phar­ma­cy ben­e­fit man­agers.

“But when they launch a new drug, they launch it at the high, over­ly in­flat­ed price of a high­er drug in that sort of sec­tor, and don’t of­fer those same re­bates that off­set the price in­creas­es,” he said. “And so we have this growth, where ar­ti­fi­cial price in­creas­es on ex­ist­ing prod­ucts dri­ve high­er launch prices for new prod­ucts”

Manchin told re­porters ear­li­er this week that he’s will­ing to talk to De­moc­rats on the BB­BA, though he’ll be “start­ing from scratch,” per an NBC News re­port. An­oth­er re­cent re­port from the CBO — out­lin­ing how Medicare ne­go­ti­a­tions could take a bite out of the amount of new drugs that make it to mar­ket — isn’t help­ing Dems’ case.

Ac­cord­ing to a new slide deck re­leased by the CBO last week, an up­dat­ed mod­el sug­gests a 10% long-term re­duc­tion in the num­ber of new drugs, where­as a pre­vi­ous CBO re­port from Au­gust es­ti­mat­ed that 8% few­er new drugs will en­ter the mar­ket over 30 years. The new mod­el sug­gests we could see 40 few­er new drugs in the third decade, com­pared to the 34 few­er pre­dict­ed by the old mod­el.

“What I think is re­al­ly im­por­tant to un­der­stand about the CBO re­port is their mod­el­ing shows that these drugs, whether it’s 8% or 10%, are drugs that were go­ing to be mar­gin­al­ly prof­itable to even start with,” Dick­son said.

Hy­po­thet­i­cal­ly, Dick­son says the drugs that wouldn’t make it to mar­ket would like­ly be the ones so close to that thresh­old of prof­itabil­i­ty — the “me too” drugs that are hop­ping on the band­wag­on, and not adding any­thing “ther­a­peu­ti­cal­ly valu­able,” he said.

“It’s not, you know, a ran­dom pick, we’re gonna pick 10% of all the drugs that were go­ing to come to mar­ket and re­move those,” he said. “The com­pa­nies are on­ly go­ing to take the ones that were mar­gin­al­ly el­i­gi­ble to come to mar­ket to start with in terms of prof­itabil­i­ty, and those are not like­ly to be drugs that have a huge health ben­e­fit or help a lot of peo­ple.”

PhRMA blast­ed the BBB bill’s pas­sage in the House back in No­vem­ber, say­ing it will “throw sand in the gears of med­ical progress.”

The ver­sion that passed the House is ex­pect­ed to save the gov­ern­ment (and cost in­dus­try) about $76 bil­lion over 10 years, and about $85 bil­lion in in­fla­tion re­bate penal­ties if drug prices rise above cer­tain lev­els. That’s a far cry from House Speak­er Nan­cy Pelosi’s for­mer drug price ne­go­ti­a­tions bill, known as HR3, which the CBO scored in Au­gust as $456 bil­lion in sav­ings over 10 years.

The Medicare ne­go­ti­a­tions deal al­so in­cludes ex­ten­sive lim­i­ta­tions, and it’s un­clear what kind of dent, if any, the deal will make on drug prices over the longer term, or for those out­side of Medicare.

“More im­por­tant­ly, it would set new prece­dents for the mar­ket, and in par­tic­u­lar, I’m talk­ing about the com­bi­na­tion of those ne­go­ti­a­tion pro­vi­sions with the in­fla­tion penal­ties that are part of them,” Dick­son said.

Illustration: Assistant Editor Kathy Wong for Endpoints News

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President Joe Biden at the State of the Union address with Vice President Kamala Harris and House Speaker Kevin McCarthy (Patrick Semansky/AP Images)

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Richard Francis, newly-appointed Teva CEO (Novartis via Facebook)

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Bill Anderson, incoming Bayer CEO (David Paul Morris/Bloomberg via Getty Images)

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