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Prescription Medicines:
Costs in Context
2020
2
56 New Medicines Were Approved by the FDA in 2019
We are in a New Era of Medicine Where
Breakthrough Science is Transforming Patient Care
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
Prescription Medicines: Costs in Context www.phrma.org/cost
Cancer Death Rate Game Changer Coronavirus Vaccine
3
Medicine Prices Retail Medicine Spending
Out-of-pocket Costs for the Sickest Continue to Soar Despite
a Dramatic Slowdown in Medicine Prices and Spending
2019
1.7%
2019*
3.2%
Prescription Medicines: Costs in Context www.phrma.org/cost
*Projected
4
Negotiating power is increasingly concentrated among
fewer pharmacy benefit managers (PBMs).
Top 3
Market Share:
74%
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
Insurers and PBMs Have a Lot of
Leverage to Hold Down Medicine Costs
Prescription Medicines: Costs in Context www.phrma.org/cost
21%
33%
20%
36%
Source: Drug Channels Institute, March 2020.
5
Spending on Retail and Physician-administered Medicines
Represents Just 14% of Health Care Spending
Prescription Medicines: Costs in Context www.phrma.org/cost
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
Source: PhRMA analysis of CMS National Health Expenditures, Altarum Institute, and Berkeley Research Group data. May not sum to 100% due to rounding.
7% Brand Manufacturers
2% Generic Manufacturers
5% Supply Chain Entities
6
91% of All Medicines Dispensed in the
United States are Generics
nearly
$2.2 trillion
10-year savings
(2010 - 2019)
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: IMS Health. Drug Channels Institute, March 2020; Association for Accessible Medicines. “Generic Drug & Biosimilars Access & Savings Report,” 2020.
19%
33%
43%
52%
72%
88% 90% 91%
1984 1990 1996 2002 2008 2014 2018 2019
7
Medicine Spending is Projected to Grow in Line with
Health Care Spending Through Next Decade
Prescription Medicines: Costs in Context www.phrma.org/cost
In 7 of the last 10 years, Retail Drug Spending Growth
was below Total Health Spending Growth
AnnualGrowthRate
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
Source: CMS National Health Expenditures Report 2020
Note: Total retail sales include brand medicines and generics.
Total Health Spending Growth Rate Prescription Drug Spending Growth Rate
8
Nearly Half of Spending on Brand Medicines Goes to Entities
Other Than the Manufacturers Who Developed Them
Prescription Medicines: Costs in Context www.phrma.org/cost
Rebates, discounts, fees and other
price concessions have more than
doubled since 2012
2012 2019
$74B
$175B
Source: Berkeley Research Group, 2020.
54%
46%
Brand Manufacturer Other Entity Received
Percent of Total Spending on Brand
Medicines Received by Manufacturers
and Other Entities, 2018
Source: Drug Channels Institute, March 2020.
9
Patients Face Rising Out-of-pocket Costs for
Medicines and Other Barriers to Care
Percent of plans with deductibles
on prescription drugs
23%
52%
2012 2017
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
Source: PWC, KFF
4%
7%
11%
14%
23% 23%
44% 45%
48%
2005 2007 2009 2011 2013 2015 2017 2019 2020
10
Cost sharing for nearly 1 in 10 brand
prescriptions is based on list price
Half of commercially insured patients’
out-of-pocket spending for brand
medicines is based on the full list price
Too Often, Negotiated Savings Do Not
Make Their Way to Patients
Prescription Medicines: Costs in Context www.phrma.org/cost
51.4%
14.3%
34.3%
49%
Copay
Deductible
Coinsurance
Source: IQVIA. August 2020.
11
Hospital spending is much higher
than prescription drug spending.
Yet patients pay more out-of-pocket
for medicines than for hospital care.
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
Total U.S. Spending
Hospital Care Retail Prescription Drugs
$1,191.8B
$335B
$850B
Total Patient Out-of-Pocket Spending
Hospital Care Retail Prescription Drugs
$47.1B
$34.8B
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: Drug Channels Institute analysis of National Health Expenditure Accounts, Office of the Actuary in the Centers for Medicare & Medicaid Services, December 2019. Outpatient prescription drug figures exclude inpatient
prescription drug spending within hospitals and nearly all provider-administered outpatient drugs. Figures in billions.
12
Hospitals Account for 1/3 of All U.S. Health Care Spending and
Contribute to Patient Out-of-pocket Costs by Marking Up Medicines
An analysis found that 320
hospitals mark up some
medicine prices at least 1000%
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
Amount
paid by
hospital
Amount
billed by
hospital
$1,050
$150
1000%
Prescription Medicines: Costs in Context www.phrma.org/cost
Source: The Moran Company. Hospital Charges and Reimbursement for Medicines: Analysis of Cost-to Charge Ratios. September 2018.
13
The amount of brand medicine spending retained by hospitals,
pharmacies and providers grew 2x between 2013 and 2018.
Hospitals and Other Health Care Providers Use the 340B Drug
Discount Program to Retain an Increasing Share of Medicine Spending
$0B
$10B
$20B
$30B
$40B
$50B
$60B
2013 2018
Other Provider Margin 340B Margin
9X$3.5B
$21.2B
$30.6B
$18.0B
Source: Berkeley Research Group.
Prescription Medicines: Costs in Context www.phrma.org/cost
14
Medicine Spending in the United States is
In Line with Spending Around the World
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 as a Percentage of Total Health Care Spending
14% Canada
14% USA
11% UK
13% France
13% Germany
15% Italy
12% Spain
16% Japan
10% Australia
16% Korea
Prescription Medicines: Costs in Context www.phrma.org/cost
15
Prescription Medicines: Costs in Context www.phrma.org/cost
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 IQVIA Analytics Link and FDA, EMA and PMDA data. January 2020. Note: New Active Substances (NASs) approved by the FDA, EMA and/or PMDA and first launched in any country between
January 2011 and June 2019. Average delay represents the time in months since global first launch among NASs that have launched in a given country. IQVIA reports only the retail channel for Greece.
88%
64% 61%
53% 52% 49%
15%
United States Germany United Kingdom Japan France Canada Greece
Number of New Medicines Available by Country, January 2011 - June 2019
16
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.
PhRMA Created the Medicine Assistance Tool, or MAT,
To Help Patients Navigate Medicine Affordability
The Medicine Assistance Tool Includes:
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
Prescription Medicines: Costs in Context www.phrma.org/cost
17
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 October 2020

  • 2. 2 56 New Medicines Were Approved by the FDA in 2019 We are in a New Era of Medicine Where Breakthrough Science is Transforming Patient Care 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 Prescription Medicines: Costs in Context www.phrma.org/cost Cancer Death Rate Game Changer Coronavirus Vaccine
  • 3. 3 Medicine Prices Retail Medicine Spending Out-of-pocket Costs for the Sickest Continue to Soar Despite a Dramatic Slowdown in Medicine Prices and Spending 2019 1.7% 2019* 3.2% Prescription Medicines: Costs in Context www.phrma.org/cost *Projected
  • 4. 4 Negotiating power is increasingly concentrated among fewer pharmacy benefit managers (PBMs). Top 3 Market Share: 74% 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 Insurers and PBMs Have a Lot of Leverage to Hold Down Medicine Costs Prescription Medicines: Costs in Context www.phrma.org/cost 21% 33% 20% 36% Source: Drug Channels Institute, March 2020.
  • 5. 5 Spending on Retail and Physician-administered Medicines Represents Just 14% of Health Care Spending Prescription Medicines: Costs in Context www.phrma.org/cost 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 Source: PhRMA analysis of CMS National Health Expenditures, Altarum Institute, and Berkeley Research Group data. May not sum to 100% due to rounding. 7% Brand Manufacturers 2% Generic Manufacturers 5% Supply Chain Entities
  • 6. 6 91% of All Medicines Dispensed in the United States are Generics nearly $2.2 trillion 10-year savings (2010 - 2019) Prescription Medicines: Costs in Context www.phrma.org/cost Source: IMS Health. Drug Channels Institute, March 2020; Association for Accessible Medicines. “Generic Drug & Biosimilars Access & Savings Report,” 2020. 19% 33% 43% 52% 72% 88% 90% 91% 1984 1990 1996 2002 2008 2014 2018 2019
  • 7. 7 Medicine Spending is Projected to Grow in Line with Health Care Spending Through Next Decade Prescription Medicines: Costs in Context www.phrma.org/cost In 7 of the last 10 years, Retail Drug Spending Growth was below Total Health Spending Growth AnnualGrowthRate 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 Source: CMS National Health Expenditures Report 2020 Note: Total retail sales include brand medicines and generics. Total Health Spending Growth Rate Prescription Drug Spending Growth Rate
  • 8. 8 Nearly Half of Spending on Brand Medicines Goes to Entities Other Than the Manufacturers Who Developed Them Prescription Medicines: Costs in Context www.phrma.org/cost Rebates, discounts, fees and other price concessions have more than doubled since 2012 2012 2019 $74B $175B Source: Berkeley Research Group, 2020. 54% 46% Brand Manufacturer Other Entity Received Percent of Total Spending on Brand Medicines Received by Manufacturers and Other Entities, 2018 Source: Drug Channels Institute, March 2020.
  • 9. 9 Patients Face Rising Out-of-pocket Costs for Medicines and Other Barriers to Care Percent of plans with deductibles on prescription drugs 23% 52% 2012 2017 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 Source: PWC, KFF 4% 7% 11% 14% 23% 23% 44% 45% 48% 2005 2007 2009 2011 2013 2015 2017 2019 2020
  • 10. 10 Cost sharing for nearly 1 in 10 brand prescriptions is based on list price Half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price Too Often, Negotiated Savings Do Not Make Their Way to Patients Prescription Medicines: Costs in Context www.phrma.org/cost 51.4% 14.3% 34.3% 49% Copay Deductible Coinsurance Source: IQVIA. August 2020.
  • 11. 11 Hospital spending is much higher than prescription drug spending. Yet patients pay more out-of-pocket for medicines than for hospital care. 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 Total U.S. Spending Hospital Care Retail Prescription Drugs $1,191.8B $335B $850B Total Patient Out-of-Pocket Spending Hospital Care Retail Prescription Drugs $47.1B $34.8B Prescription Medicines: Costs in Context www.phrma.org/cost Source: Drug Channels Institute analysis of National Health Expenditure Accounts, Office of the Actuary in the Centers for Medicare & Medicaid Services, December 2019. Outpatient prescription drug figures exclude inpatient prescription drug spending within hospitals and nearly all provider-administered outpatient drugs. Figures in billions.
  • 12. 12 Hospitals Account for 1/3 of All U.S. Health Care Spending and Contribute to Patient Out-of-pocket Costs by Marking Up Medicines An analysis found that 320 hospitals mark up some medicine prices at least 1000% 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 Amount paid by hospital Amount billed by hospital $1,050 $150 1000% Prescription Medicines: Costs in Context www.phrma.org/cost Source: The Moran Company. Hospital Charges and Reimbursement for Medicines: Analysis of Cost-to Charge Ratios. September 2018.
  • 13. 13 The amount of brand medicine spending retained by hospitals, pharmacies and providers grew 2x between 2013 and 2018. Hospitals and Other Health Care Providers Use the 340B Drug Discount Program to Retain an Increasing Share of Medicine Spending $0B $10B $20B $30B $40B $50B $60B 2013 2018 Other Provider Margin 340B Margin 9X$3.5B $21.2B $30.6B $18.0B Source: Berkeley Research Group. Prescription Medicines: Costs in Context www.phrma.org/cost
  • 14. 14 Medicine Spending in the United States is In Line with Spending Around the World 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 as a Percentage of Total Health Care Spending 14% Canada 14% USA 11% UK 13% France 13% Germany 15% Italy 12% Spain 16% Japan 10% Australia 16% Korea Prescription Medicines: Costs in Context www.phrma.org/cost
  • 15. 15 Prescription Medicines: Costs in Context www.phrma.org/cost 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 IQVIA Analytics Link and FDA, EMA and PMDA data. January 2020. Note: New Active Substances (NASs) approved by the FDA, EMA and/or PMDA and first launched in any country between January 2011 and June 2019. Average delay represents the time in months since global first launch among NASs that have launched in a given country. IQVIA reports only the retail channel for Greece. 88% 64% 61% 53% 52% 49% 15% United States Germany United Kingdom Japan France Canada Greece Number of New Medicines Available by Country, January 2011 - June 2019
  • 16. 16 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. PhRMA Created the Medicine Assistance Tool, or MAT, To Help Patients Navigate Medicine Affordability The Medicine Assistance Tool Includes: 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 Prescription Medicines: Costs in Context www.phrma.org/cost
  • 17. 17 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