Not only are people paying way more for drugs these days, pharmaceutical companies are raking it in, with both sales and profit margins reaping the benefits.
Modern Healthcare reports that, according to the Government Accountability Office, people are forking over almost twice as much for prescription drugs as they did 30 years ago. Retail prescription drug expenses ate up some 12 percent of all U.S. healthcare spending in 2015, an increase from the 1990s' 7 percent.
Pharmaceutical and biotechnology sales revenue rose, too, increasing from $534 billion to $775 billion between 2006 and 2015, according to a recent GAO report. And the beneficiaries of all that largesse are the drug companies, with two thirds seeing their profit margins increase by an average of 17.1 percent over that period.
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The GAO, along with other agencies and experts, is trying to identify the reasons that expenses for this particular segment of health care see such fast growth. The spike in the price of drugs has caused multiple deleterious effects, from hospitals and consumers looking for ways around the use of drugs to save on expenses or flat-out delaying treatment, to providers cutting back on hospital expenditures that would improve operations.
Brand names seem to be at fault for a large part of the problem, with the GAO finding that their use is responsible for much of the increase—which is expected to rise by approximately another 8 percent in 2018. Generics have seen price spikes, too, however, amid limited competition, while consolidation in the drug industry has stifled research and development spending and new patents issued, according to the research—as well as contributing to price rises.
Pharmaceutical M&A can improve pharma companies' ability to negotiate with pharmacy benefit managers. And some payment policies can weigh on the negotiating power of insurers, with some brand-name pharma coupons provided to consumers actually increasing the overall cost.
The Food and Drug Administration is prevented by a market exclusivity provision in the Orphan Drug Act—another driver of higher prices—and has said it will prioritize some generic-drug applications for branded drugs that have less than three competitors, and clear the existing orphan drug request backlog to streamline the response process. It also says it will patch a porous regulatory framework that has allowed branded drug manufacturers to block generic competitors.
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