Following 250 US drug price increases in 2020 already, this article explores why costs are rising, what changes could ensure brand reputations remain intact and what manufacturers can do to ensure they get their share.
With over 250 individual US drug price increases reported in 2020 already, Drug Target Review’s Hannah Balfour investigated the underlying issues behind these so-called ‘price-hikes’ and reported on what reforms could be instated to ensure brand reputations stay intact and manufacturers get paid.
This report addresses the key factors shaping pharmaceutical formulation, including regulation, QC and analysis.
Access the full report now to discover the techniques, tools and innovations that are transforming pharmaceutical formulation, and learn how to position your organisation for long-term success.
What you’ll discover:
Key trends shaping the pharmaceutical formulation sector
Innovations leading progress in pharmaceutical formulation and how senior professionals can harness their benefits
Considerations and best practices when utilising QbD during formulation of oral solid dosage forms
Can’t attend live? No worries – register to receive the recording post-event.
Biologics and biosimilars
Drug price increases have primarily affected the US biologics market; innovation is expensive and manufacturers performing the research, development and manufacture of these more complex therapeutics are driving the increase in drug expenditure. For example, IQVIA data revealed that biologic medicines accounted for almost 75 percent of the increase in pharmaceutical costs observed in 2018.
One of the key factors suggested to be causing inflated drug prices, which was highlighted in a recent Principles for Responsible Investment(PRI) issue brief on drug pricing,1 is a lack of competition between biologics and biosimilars. The brief suggested that the inefficiencies of the US pharmaceutical supply chain and the rebate system promote an environment that blocks the wider use of biosimilars.
…while overall spending on branded medications by patients and health plans had increased… the percentage of that money retained by manufacturers had declined”
Dr Wayne Winegarden, author of the PRI brief, suggested that the complexities of the pharmaceutical supply chain mean that despite the slow growth of overall expenditures, patients still have excessive costs imposed upon them. This is due to a phenomenon known as ‘the price gap’ – the difference between the medicines’ invoice price (the price manufacturers set) and the net price (paid by health plans, government and employer groups on behalf of patients).
According to the brief, this gap exists because the invoice price acts as an opening bid, instead of the true worth of the product. From this value, pharmacy benefit managers (PBMs) negotiate the largest possible discounts and rebates to get to the net price. This gap grew to over a quarter of the invoice value in 2018, which Winegarden believes is down to PBMs being paid based on the size of the discount they negotiate, and are therefore incentivised to promote the use of the highest cost biologics, with the highest rebate values, in place of the cheaper biosimilars.
This system results in manufacturers vastly inflating their product list prices, resulting in patients losing faith in brands because they typically pay their fee based on the invoice price.
Rising prices should mean more money for manufacturers – is that the case? Put simply, no.
A recent Berkeley Research Group (BRG) review following the flow of dollars through the US supply chain broke down how spending at the point of sale on branded medication is distributed across stakeholders.2 The authors concluded that while overall spending on branded medications by patients and health plans had increased from $354 billion in 2015 to $440 billion in 2018, the percentage of that money retained by manufacturers had declined.
…the increase in 2020 is expected to be an average of five percent, while lower than 2019, is still high considering that there has been several high-profile initiatives in the US to lower drug costs”
Aaron Vandervelde and Andrew Brownlee, review authors and both BRG professionals, determined that the supply chain and medicine providers pocketed nearly half of all branded medicine spending in 2018. Meanwhile, the manufacturers share was only 54.3 percent, a reduction of 12.5 percent between 2013 and 2018.
The study demonstrates that in every year from 2015 to 2018 so-called ‘payers’ – health plans, PBMs, government and employer groups – received the largest share of the increase in total spending. These gains were primarily through the expansion of the 340B Drug Pricing Program, in which drug manufacturers must provide outpatient care facilities and hospitals with drugs at hugely reduced prices, and the pre-existing rebate system, where payers negotiate a significant discount off the list price, but often do not pass the discount onto patients and instead keep the difference.
According to Vandervelde, the rebate system is driving price increases, as manufacturers are forced to raise their costs to compensate for their share being divided and redirected across the many intermediary bodies.
Factors likely to impact drug prices in 2020
A study from GlobalData identified factors that will likely have the biggest impact on industry growth in 2020. According to their latest annual outlook report, 49 percent of global industry survey respondents believe that drug pricing and reimbursement constraints will have the greatest negative impact on the pharmaceutical industry in 2020.3
In reference to this report, Dr Bonnie Bain, Global Head of Pharma at GlobalData, said: “It is not surprising that drug pricing and reimbursement constraints remain the number one concern for the industry, especially since 2020 kicked off with drug companies in the US again raising prices for several hundred drugs.”
“Compared to last year when the average increase was around 6.3 percent, the increase in 2020 is expected to be an average of five percent, while lower than 2019, is still high considering that there has been several high-profile initiatives in the US to lower drug costs, including the successful passage of the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act in December 2019,” explained Bain.
Another finding of the report was that 20 percent of respondents suggested expiring biologic medicine patents may help slow price increases.4 Several biologic patents have now ended and their biosimilars, including Amgen’s monoclonal antibodies Mvasi (Avastin) and Kanjinti (Herceptin), went into clinical use in 2019.
Several other biosimilar launches are expected in 2020, including Pfizer’s Rituxan in January and Herceptin in February 2020.
“Even though the price differential between biosimilars and their branded counterparts is only around 15-30 percent, which is significantly less than the cost savings seen with the average generic drug, we still expect that biosimilars will start to contribute cost-savings in the US in 2020,” said Bain.
The report also indicated industry professionals thought vertical integrations or consolidations between PBMs and health insurers or pharmacies, may have a beneficial effect on US drug prices.4
“These deals [vertical integrations] are touted as opportunities to reduce inconsistencies, consolidate data, align pricing and ultimately lower cost of care… this trend will likely continue in 2020 as the industry looks for new ways to control costs and increase margins,” explained Bain.
However, the PRI brief raises concerns about the implications of such consolidations; Winegarden concludes that the overall motive for a merger will be key to its impact. The brief states that these mergers may just be a method of payers retaining more money, as opposed to improving delivery of medicines.
So, what can be done to curb rising prices?
Incentive reforms
All the evidence suggests that reforms are needed. Winegarden’s brief proposes that incentives be changed so that the biologics market performs more like the chemical-based market, which supports innovation and affordability using pre-determined exclusivity periods, allowing manufacturers to recoup their R&D capital prior to competitors releasing generics to drive down prices.1
Despite this system working in the biologics and biosimilars market, the brief states that it fails due to the rebate model. Winegarden suggests transitioning to a ‘net-price model’ where manufacturers set a price that reflects the products’ value, and that is the price paid. He believes this encourages competition from manufacturers based on the true worth of a product, instead of how much they are prepared to lose in the negotiation process.
Single payer systems
Another suggestion is the implementation of a single payer system. A University of California – San Francisco study summarising nearly two dozen analyses of national and state-wide single payer proposals made over the past 30 years showed that a single payer system would save patients, government and health plans money and increase the share retained by manufacturers, likely within the first year.5
…the American College of Physicians (ACP) published a series of papers recommending policy changes that would mean everyone in the US would be covered for healthcare under a single payer, national insurance system”
A single payer system requires a lone financing body to replace private insurance, therefore prices and rebates are not variable but apply to the entire state or nation. This simplified system would remove PBMs and many intermediaries in the supply chain, resulting in a greater share being retained by manufacturers. Single payer systems are already in place in Canada and some other countries with universal coverage.
To estimate what would happen if the US adopted a single payer system, researchers examined 22 economic analyses of national and state-level single payer plans. The team found that 19 of the 22 models predicted net savings in the first year after implementation. Ten of the models investigated cost projections in the future; from these the researchers concluded that savings would only increase over time.
Dr James G. Kahn, MPH, a professor in the UCSF Department of Epidemiology and Biostatistics said: “Even though they start with different single designs and modelling assumptions, the vast majority of these studies all come to the same conclusion,” that this type of reform would save money.
Overwhelmingly, the evidence in this article indicates that the complexities of the current US drug supply chain, including the rebate negotiation system and the intermediate bodies between the manufacturer and the patients, are driving the US drug price hike. Industry experts suggest that not only are enforced drug pricing and reimbursement constraints ineffective, they may be harmful in 2020.
Several suggestions for reforms are out there, but overall, simplification of the supply chain is the way to ensure that manufacturers recoup their capital and patients receive the treatments they need.
The American College of Physicians endorse ‘Medicare for All’
On the 20 January 2020 the American College of Physicians (ACP) published a series of papers recommending policy changes that would mean everyone in the US would be covered for healthcare under a single payer, national insurance system. Doctors expect this to both cut administrative time pressures and curb the rising costs of US healthcare.
The policies were developed by examining the strengths and weaknesses of the current US health system and analysing the major problems with American health care. According to the ACP, the solutions suggested are based on the best available data and evidence and a comprehensive review of recommendations in other literature.
The ACP is the largest medical specialty society in the US and the papers were supported by 2000 physicians ‘prescribing’ Medicare for All.
This website uses cookies to enable, optimise and analyse site operations, as well as to provide personalised content and allow you to connect to social media. By clicking "I agree" you consent to the use of cookies for non-essential functions and the related processing of personal data. You can adjust your cookie and associated data processing preferences at any time via our "Cookie Settings". Please view our Cookie Policy to learn more about the use of cookies on our website.
This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorised as ”Necessary” are stored on your browser as they are as essential for the working of basic functionalities of the website. For our other types of cookies “Advertising & Targeting”, “Analytics” and “Performance”, these help us analyse and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these different types of cookies. But opting out of some of these cookies may have an effect on your browsing experience. You can adjust the available sliders to ‘Enabled’ or ‘Disabled’, then click ‘Save and Accept’. View our Cookie Policy page.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Cookie
Description
cookielawinfo-checkbox-advertising-targeting
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Advertising & Targeting".
cookielawinfo-checkbox-analytics
This cookie is set by GDPR Cookie Consent WordPress Plugin. The cookie is used to remember the user consent for the cookies under the category "Analytics".
cookielawinfo-checkbox-necessary
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance
This cookie is set by GDPR Cookie Consent WordPress Plugin. The cookie is used to remember the user consent for the cookies under the category "Performance".
PHPSESSID
This cookie is native to PHP applications. The cookie is used to store and identify a users' unique session ID for the purpose of managing user session on the website. The cookie is a session cookies and is deleted when all the browser windows are closed.
viewed_cookie_policy
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
zmember_logged
This session cookie is served by our membership/subscription system and controls whether you are able to see content which is only available to logged in users.
Performance cookies are includes cookies that deliver enhanced functionalities of the website, such as caching. These cookies do not store any personal information.
Cookie
Description
cf_ob_info
This cookie is set by Cloudflare content delivery network and, in conjunction with the cookie 'cf_use_ob', is used to determine whether it should continue serving “Always Online” until the cookie expires.
cf_use_ob
This cookie is set by Cloudflare content delivery network and is used to determine whether it should continue serving “Always Online” until the cookie expires.
free_subscription_only
This session cookie is served by our membership/subscription system and controls which types of content you are able to access.
ls_smartpush
This cookie is set by Litespeed Server and allows the server to store settings to help improve performance of the site.
one_signal_sdk_db
This cookie is set by OneSignal push notifications and is used for storing user preferences in connection with their notification permission status.
YSC
This cookie is set by Youtube and is used to track the views of embedded videos.
Analytics cookies collect information about your use of the content, and in combination with previously collected information, are used to measure, understand, and report on your usage of this website.
Cookie
Description
bcookie
This cookie is set by LinkedIn. The purpose of the cookie is to enable LinkedIn functionalities on the page.
GPS
This cookie is set by YouTube and registers a unique ID for tracking users based on their geographical location
lang
This cookie is set by LinkedIn and is used to store the language preferences of a user to serve up content in that stored language the next time user visit the website.
lidc
This cookie is set by LinkedIn and used for routing.
lissc
This cookie is set by LinkedIn share Buttons and ad tags.
vuid
We embed videos from our official Vimeo channel. When you press play, Vimeo will drop third party cookies to enable the video to play and to see how long a viewer has watched the video. This cookie does not track individuals.
wow.anonymousId
This cookie is set by Spotler and tracks an anonymous visitor ID.
wow.schedule
This cookie is set by Spotler and enables it to track the Load Balance Session Queue.
wow.session
This cookie is set by Spotler to track the Internet Information Services (IIS) session state.
wow.utmvalues
This cookie is set by Spotler and stores the UTM values for the session. UTM values are specific text strings that are appended to URLs that allow Communigator to track the URLs and the UTM values when they get clicked on.
_ga
This cookie is set by Google Analytics and is used to calculate visitor, session, campaign data and keep track of site usage for the site's analytics report. It stores information anonymously and assign a randomly generated number to identify unique visitors.
_gat
This cookies is set by Google Universal Analytics to throttle the request rate to limit the collection of data on high traffic sites.
_gid
This cookie is set by Google Analytics and is used to store information of how visitors use a website and helps in creating an analytics report of how the website is doing. The data collected including the number visitors, the source where they have come from, and the pages visited in an anonymous form.
Advertising and targeting cookies help us provide our visitors with relevant ads and marketing campaigns.
Cookie
Description
advanced_ads_browser_width
This cookie is set by Advanced Ads and measures the browser width.
advanced_ads_page_impressions
This cookie is set by Advanced Ads and measures the number of previous page impressions.
advanced_ads_pro_server_info
This cookie is set by Advanced Ads and sets geo-location, user role and user capabilities. It is used by cache busting in Advanced Ads Pro when the appropriate visitor conditions are used.
advanced_ads_pro_visitor_referrer
This cookie is set by Advanced Ads and sets the referrer URL.
bscookie
This cookie is a browser ID cookie set by LinkedIn share Buttons and ad tags.
IDE
This cookie is set by Google DoubleClick and stores information about how the user uses the website and any other advertisement before visiting the website. This is used to present users with ads that are relevant to them according to the user profile.
li_sugr
This cookie is set by LinkedIn and is used for tracking.
UserMatchHistory
This cookie is set by Linkedin and is used to track visitors on multiple websites, in order to present relevant advertisement based on the visitor's preferences.
VISITOR_INFO1_LIVE
This cookie is set by YouTube. Used to track the information of the embedded YouTube videos on a website.