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2021
Prescription Medicines:
Costs in Context
2
CONFIDENTIAL
We are in a New Era of Medicine Where Breakthrough
Science is Transforming Patient Care
53 New Medicines Were Approved by the FDA in 2020
Cancer death rate posts biggest
one-year drop ever
Newly approved drug being
called ‘game changer’ for people
who suffer from hemophilia
Reasons for hope: the drugs,
tests and tactics that may
conquer coronavirus
Cancer Death Rate Game Changer Coronavirus Vaccine
Source: US FDA. Center for Drug Evaluation and Research (CDER) Advancing Health through Innovation. 2020 New Drug Approvals.
Note: Due to lack of data availability, novel approvals are not inclusive of medicines approved by the Center for Biologics Evaluation and Research (CBER) in 2020.
Prescription Medicines: Costs in Context www.phrma.org/cost
3
CONFIDENTIAL
Though Growth in Medicine Prices and Spending Remains
in Line With Inflation, Many Patients Still Struggle to Afford
their Medicines
Brand Medicine Prices Retail Medicine Spending
2019
1.7%
2019*
3.2%
* Projected
Prescription Medicines: Costs in Context www.phrma.org/cost
4
CONFIDENTIAL
Insurers and PBMs Have a Lot of Leverage to Hold
Down Medicine Costs
Negotiating poweris increasingly concentrated amongfewer pharmacy benefit
managers (PBMs).
Source: Drug Channels Institute, March 2021.
24%
32%
21%
23%
Top 3
Market Share:
77%
OptumRx (UnitedHealthGroup)
CVS Health (Caremark)
Express Scripts
All Other
Insurers determine:
FORMULARY
if a medicine is covered
TIER PLACEMENT
patient cost sharing
ACCESSIBILITY
utilization management through
prior authorization or fail first
PROVIDER INCENTIVES
preferred treatment guidelines
and pathways
Prescription Medicines: Costs in Context www.phrma.org/cost
5
CONFIDENTIAL
Spending on Retail and Physician-administered Medicines
Represents Just 14% of Health Care Spending
Source: PhRMA analysis of CMS National Health Expenditures, Altarum Institute, and Berkeley Research Group data. May not sum to 100% due to rounding.
8%
12%
14%
17%
14%
4%
31%
Admin Costs
Home Health & Nursing Home Care
Prescription Medicines
Physician & Clinical Services
Other**
Dental Services
Hospital Care
U.S.
Health Care
Spending,
2018
7% Brand Manufacturers
2% Generic Manufacturers
5% Supply Chain Entities
Prescription Medicines: Costs in Context www.phrma.org/cost
6
CONFIDENTIAL
91% of All Medicines Dispensed in the United States
are Generics
Source: IMS Health. Drug Channels Institute, March 2021; Association for Accessible Medicines. “Generic Drug & Biosimilars Access & Savings Report,” 2020.
Prescription Medicines: Costs in Context www.phrma.org/cost
19%
33%
43%
52%
72%
88% 90% 91%
1984 1990 1996 2002 2008 2014 2018 2020
nearly
$2.2 trillion
10-year savings
(2010 - 2019)
7
CONFIDENTIAL
Medicine Spending is Projected to Grow in Line with
Health Care Spending Through Next Decade
In 7 of the last 10 years, Retail Drug Spending Growth was below Total Health
Spending Growth
Source: CMS National Health Expenditures Report 2020
Note: Total retail sales include brand medicines and generics.
Prescription Medicines: Costs in Context www.phrma.org/cost
Total Health Spending Growth Rate Prescription Drug Spending Growth Rate
Annual
Growth
Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2024 2025 2026 2027 2028
14%
12%
10%
8%
6%
4%
2%
0%
Projections show retail
drug spending growth
in line with overall
health spending
8
CONFIDENTIAL
Nearly Half of Spending on Brand Medicines Goes to Entities
Other Than the Manufacturers Who Developed Them
Percent of Total Spending on Brand
Medicines Received by Manufacturers
and Other Entities, 2018
Rebates, discounts, fees and other
price concessions have more than
doubled since 2012
2012 2020
$74B
$187B
54%
46%
Source: Berkeley Research Group, 2020. Source: Drug Channels Institute, March 2021.
Prescription Medicines: Costs in Context www.phrma.org/cost
Brand Manufacturer Other Entity Received
9
CONFIDENTIAL
Insurers are Increasingly Shifting Costs to Patients
Through the Use of Deductibles and Coinsurance
Source: PWC, KFF
Prescription Medicines: Costs in Context www.phrma.org/cost
The use of four or more cost-sharing tiers is
becoming more common on employer plans
Percent of plans with deductibles
on prescription drugs
23%
52%
2012 2017
4%
7%
11%
14%
23% 23%
44% 45%
48%
2005 2007 2009 2011 2013 2015 2017 2019 2020
10
CONFIDENTIAL
Too Often, Negotiated Savings Do Not Make Their Way
to Patients at the Pharmacy Counter
Half of commercially insured patients’
out-of-pocket spending for brand
medicines is based on the full list price
Cost sharing for nearly 1 in 10 brand
prescriptions is based on list price
Source: IQVIA. August 2020.
Prescription Medicines: Costs in Context www.phrma.org/cost
51.4%
14.3%
34.3%
49%
Copay
Deductible
Coinsurance
11
CONFIDENTIAL
Patients Face High Out-of-pocket Costs at the Pharmacy
Counter Even Though Total Spending on Other Parts of
the Health Care System is Far Higher
Half of commercially insured patients’
out-of-pocket spending for brand
medicines is based on the full list price
Cost sharing for nearly 1 in 10 brand
prescriptions is based on list price
Source: Drug Channels Institute analysis of National Health Expenditure Accounts, Office of the Actuary in the Centers for Medicare & Medicaid Services, December 2020. Outpatient prescription drug figures exclude
inpatient prescription drug spending within hospitals and nearly all provider-administered outpatient drugs. Figures in billions.
Prescription Medicines: Costs in Context www.phrma.org/cost
Total U.S. Spending
Hospital Care Retail Prescription Drugs
$1,192B
$370B
Total Patient Out-of-Pocket Spending
Hospital Care Retail Prescription Drugs
$53.7B
$35.9B
$822B
12
CONFIDENTIAL
Hospitals Account for 1/3 of All U.S. Health Care Spending
and Contribute to Patient Out-of-pocket Costs by Marking
Up Medicines
Nearly one in five hospitals marks
up medicine prices to 700% or
more of their acquisition cost
If a hospital purchased a medicine
for $150, a 700% markup could
result in patients being billed
$1,050 for that medicine
An analysis found that 320
hospitals mark up some
medicine prices at least 1,000%
Source: The Moran Company. Hospital Charges and Reimbursement
for Medicines: Analysis of Cost-to Charge Ratios. September 2018.
Prescription Medicines: Costs in Context www.phrma.org/cost
1,000%
Amount
paid by
hospital
Amount
billed by
hospital
$1,050
$150
13
CONFIDENTIAL
Hospitals and Other Health Care Providers Use the 340B
Drug Discount Program to Retain an Increasing Share of
Medicine Spending
Source: Berkeley Research Group.
Prescription Medicines: Costs in Context www.phrma.org/cost
The amount of brand medicine spending retained by hospitals, pharmacies and providers
grew 2x between 2013 and 2018.
$0B
$10B
$20B
$30B
$40B
$50B
$60B
2013 2018
Other Provider…
9X
$3.5B
$21.2B
$30.6B
$18.0B
14
CONFIDENTIAL
Medicine Spending in the United States is In Line with
Spending Around the World
Prescription Medicines as
a Percentage of Total
Health Care Spending
Note: Total health care spending includes hospital care, physician and clinical services, home health and nursing home care, government administration and net cost of private health insurance, dental, home health and other professional
services as well as durable medical equipment.
Source: OECD Health Statistics Database (accessed February 2016); Altarum Institute, 2015, A ten year projection of the prescription drug share of national health expenditures including non-retail.
Prescription Medicines: Costs in Context www.phrma.org/cost
15
CONFIDENTIAL
More Medicines are Available to U.S. Patients as Compared
with Other Countries that Set Prices Artificially Low
The 5-year survival rate for all cancers is 42% higher for men and 15% higher for
women in the U.S. than in Europe.
Source: PhRMA analysis of IQVIAAnalytics Link and U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) and Japan's Pharmaceuticals and Medical Devices Agency (PMDA) data. June 2020. Note: New active
substances approved by FDA, EMA and/or PMDA and first launched in any country between January 1, 2011, and December 31, 2019. Many launched medicines are subject to additional government coverage restrictions. Updated March 2021.
Prescription Medicines: Costs in Context www.phrma.org/cost
87%
63%
59%
51% 50%
46%
39%
United States Germany United Kingdom Japan France Canada Australia
Number of New Medicines Available by Country, 2011-2019
16
CONFIDENTIAL
PhRMA Created the Medicine Assistance Tool, or MAT,
To Help Patients Navigate Medicine Affordability
MAT makes it easier for those struggling to afford their medicines to find and learn
more about various programs that can make prescription medicines more affordable.
Prescription Medicines: Costs in Context www.phrma.org/cost
A search engine to connect patients with
900+
assistance programs offered by
biopharmaceutical companies, including
some free or nearly free options
Resources to help patients
navigate their insurance coverage
Links to biopharmaceutical
company websites where
information about the cost of a
prescription medicine is available
The Medicine Assistance Tool Includes:
17
CONFIDENTIAL
PhRMA Is Working to Fix the Health Care System So It
Works Better for Patients
Improving Patient
Affordability
Fixing Market
Incentives
Shifting Toward
Value
Increasing
Competition
• Require insurers & PBMs to pass through negotiated rebates and discounts
• Establish an annual cap on patient out-of-pocket costs in Part D
• Allow patients to spread costs throughout the year
• Lower patients’ cost sharing from 25% to 20% in Part D
• Delink supply chain payments from list prices
• Reduce 340B distortions
• Citizen petitions
• Patent settlements
• Patent transparency
• Remove barriers to innovative payment arrangements
• Identify better tools for value assessment
Prescription Medicines: Costs in Context www.phrma.org/cost

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Prescription Medicines Costs in Context July 2021

  • 2. 2 CONFIDENTIAL We are in a New Era of Medicine Where Breakthrough Science is Transforming Patient Care 53 New Medicines Were Approved by the FDA in 2020 Cancer death rate posts biggest one-year drop ever Newly approved drug being called ‘game changer’ for people who suffer from hemophilia Reasons for hope: the drugs, tests and tactics that may conquer coronavirus Cancer Death Rate Game Changer Coronavirus Vaccine Source: US FDA. Center for Drug Evaluation and Research (CDER) Advancing Health through Innovation. 2020 New Drug Approvals. Note: Due to lack of data availability, novel approvals are not inclusive of medicines approved by the Center for Biologics Evaluation and Research (CBER) in 2020. Prescription Medicines: Costs in Context www.phrma.org/cost
  • 3. 3 CONFIDENTIAL Though Growth in Medicine Prices and Spending Remains in Line With Inflation, Many Patients Still Struggle to Afford their Medicines Brand Medicine Prices Retail Medicine Spending 2019 1.7% 2019* 3.2% * Projected Prescription Medicines: Costs in Context www.phrma.org/cost
  • 4. 4 CONFIDENTIAL Insurers and PBMs Have a Lot of Leverage to Hold Down Medicine Costs Negotiating poweris increasingly concentrated amongfewer pharmacy benefit managers (PBMs). Source: Drug Channels Institute, March 2021. 24% 32% 21% 23% Top 3 Market Share: 77% OptumRx (UnitedHealthGroup) CVS Health (Caremark) Express Scripts All Other Insurers determine: FORMULARY if a medicine is covered TIER PLACEMENT patient cost sharing ACCESSIBILITY utilization management through prior authorization or fail first PROVIDER INCENTIVES preferred treatment guidelines and pathways Prescription Medicines: Costs in Context www.phrma.org/cost
  • 5. 5 CONFIDENTIAL Spending on Retail and Physician-administered Medicines Represents Just 14% of Health Care Spending Source: PhRMA analysis of CMS National Health Expenditures, Altarum Institute, and Berkeley Research Group data. May not sum to 100% due to rounding. 8% 12% 14% 17% 14% 4% 31% Admin Costs Home Health & Nursing Home Care Prescription Medicines Physician & Clinical Services Other** Dental Services Hospital Care U.S. Health Care Spending, 2018 7% Brand Manufacturers 2% Generic Manufacturers 5% Supply Chain Entities Prescription Medicines: Costs in Context www.phrma.org/cost
  • 6. 6 CONFIDENTIAL 91% of All Medicines Dispensed in the United States are Generics Source: IMS Health. Drug Channels Institute, March 2021; Association for Accessible Medicines. “Generic Drug & Biosimilars Access & Savings Report,” 2020. Prescription Medicines: Costs in Context www.phrma.org/cost 19% 33% 43% 52% 72% 88% 90% 91% 1984 1990 1996 2002 2008 2014 2018 2020 nearly $2.2 trillion 10-year savings (2010 - 2019)
  • 7. 7 CONFIDENTIAL Medicine Spending is Projected to Grow in Line with Health Care Spending Through Next Decade In 7 of the last 10 years, Retail Drug Spending Growth was below Total Health Spending Growth Source: CMS National Health Expenditures Report 2020 Note: Total retail sales include brand medicines and generics. Prescription Medicines: Costs in Context www.phrma.org/cost Total Health Spending Growth Rate Prescription Drug Spending Growth Rate Annual Growth Rate 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2024 2025 2026 2027 2028 14% 12% 10% 8% 6% 4% 2% 0% Projections show retail drug spending growth in line with overall health spending
  • 8. 8 CONFIDENTIAL Nearly Half of Spending on Brand Medicines Goes to Entities Other Than the Manufacturers Who Developed Them Percent of Total Spending on Brand Medicines Received by Manufacturers and Other Entities, 2018 Rebates, discounts, fees and other price concessions have more than doubled since 2012 2012 2020 $74B $187B 54% 46% Source: Berkeley Research Group, 2020. Source: Drug Channels Institute, March 2021. Prescription Medicines: Costs in Context www.phrma.org/cost Brand Manufacturer Other Entity Received
  • 9. 9 CONFIDENTIAL Insurers are Increasingly Shifting Costs to Patients Through the Use of Deductibles and Coinsurance Source: PWC, KFF Prescription Medicines: Costs in Context www.phrma.org/cost The use of four or more cost-sharing tiers is becoming more common on employer plans Percent of plans with deductibles on prescription drugs 23% 52% 2012 2017 4% 7% 11% 14% 23% 23% 44% 45% 48% 2005 2007 2009 2011 2013 2015 2017 2019 2020
  • 10. 10 CONFIDENTIAL Too Often, Negotiated Savings Do Not Make Their Way to Patients at the Pharmacy Counter Half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price Cost sharing for nearly 1 in 10 brand prescriptions is based on list price Source: IQVIA. August 2020. Prescription Medicines: Costs in Context www.phrma.org/cost 51.4% 14.3% 34.3% 49% Copay Deductible Coinsurance
  • 11. 11 CONFIDENTIAL Patients Face High Out-of-pocket Costs at the Pharmacy Counter Even Though Total Spending on Other Parts of the Health Care System is Far Higher Half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price Cost sharing for nearly 1 in 10 brand prescriptions is based on list price Source: Drug Channels Institute analysis of National Health Expenditure Accounts, Office of the Actuary in the Centers for Medicare & Medicaid Services, December 2020. Outpatient prescription drug figures exclude inpatient prescription drug spending within hospitals and nearly all provider-administered outpatient drugs. Figures in billions. Prescription Medicines: Costs in Context www.phrma.org/cost Total U.S. Spending Hospital Care Retail Prescription Drugs $1,192B $370B Total Patient Out-of-Pocket Spending Hospital Care Retail Prescription Drugs $53.7B $35.9B $822B
  • 12. 12 CONFIDENTIAL Hospitals Account for 1/3 of All U.S. Health Care Spending and Contribute to Patient Out-of-pocket Costs by Marking Up Medicines Nearly one in five hospitals marks up medicine prices to 700% or more of their acquisition cost If a hospital purchased a medicine for $150, a 700% markup could result in patients being billed $1,050 for that medicine An analysis found that 320 hospitals mark up some medicine prices at least 1,000% Source: The Moran Company. Hospital Charges and Reimbursement for Medicines: Analysis of Cost-to Charge Ratios. September 2018. Prescription Medicines: Costs in Context www.phrma.org/cost 1,000% Amount paid by hospital Amount billed by hospital $1,050 $150
  • 13. 13 CONFIDENTIAL Hospitals and Other Health Care Providers Use the 340B Drug Discount Program to Retain an Increasing Share of Medicine Spending Source: Berkeley Research Group. Prescription Medicines: Costs in Context www.phrma.org/cost The amount of brand medicine spending retained by hospitals, pharmacies and providers grew 2x between 2013 and 2018. $0B $10B $20B $30B $40B $50B $60B 2013 2018 Other Provider… 9X $3.5B $21.2B $30.6B $18.0B
  • 14. 14 CONFIDENTIAL Medicine Spending in the United States is In Line with Spending Around the World Prescription Medicines as a Percentage of Total Health Care Spending Note: Total health care spending includes hospital care, physician and clinical services, home health and nursing home care, government administration and net cost of private health insurance, dental, home health and other professional services as well as durable medical equipment. Source: OECD Health Statistics Database (accessed February 2016); Altarum Institute, 2015, A ten year projection of the prescription drug share of national health expenditures including non-retail. Prescription Medicines: Costs in Context www.phrma.org/cost
  • 15. 15 CONFIDENTIAL More Medicines are Available to U.S. Patients as Compared with Other Countries that Set Prices Artificially Low The 5-year survival rate for all cancers is 42% higher for men and 15% higher for women in the U.S. than in Europe. Source: PhRMA analysis of IQVIAAnalytics Link and U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) and Japan's Pharmaceuticals and Medical Devices Agency (PMDA) data. June 2020. Note: New active substances approved by FDA, EMA and/or PMDA and first launched in any country between January 1, 2011, and December 31, 2019. Many launched medicines are subject to additional government coverage restrictions. Updated March 2021. Prescription Medicines: Costs in Context www.phrma.org/cost 87% 63% 59% 51% 50% 46% 39% United States Germany United Kingdom Japan France Canada Australia Number of New Medicines Available by Country, 2011-2019
  • 16. 16 CONFIDENTIAL PhRMA Created the Medicine Assistance Tool, or MAT, To Help Patients Navigate Medicine Affordability MAT makes it easier for those struggling to afford their medicines to find and learn more about various programs that can make prescription medicines more affordable. Prescription Medicines: Costs in Context www.phrma.org/cost A search engine to connect patients with 900+ assistance programs offered by biopharmaceutical companies, including some free or nearly free options Resources to help patients navigate their insurance coverage Links to biopharmaceutical company websites where information about the cost of a prescription medicine is available The Medicine Assistance Tool Includes:
  • 17. 17 CONFIDENTIAL PhRMA Is Working to Fix the Health Care System So It Works Better for Patients Improving Patient Affordability Fixing Market Incentives Shifting Toward Value Increasing Competition • Require insurers & PBMs to pass through negotiated rebates and discounts • Establish an annual cap on patient out-of-pocket costs in Part D • Allow patients to spread costs throughout the year • Lower patients’ cost sharing from 25% to 20% in Part D • Delink supply chain payments from list prices • Reduce 340B distortions • Citizen petitions • Patent settlements • Patent transparency • Remove barriers to innovative payment arrangements • Identify better tools for value assessment Prescription Medicines: Costs in Context www.phrma.org/cost