Report: The Higher the Drug Prices, the More Industry Benefits

In the latest look at drug prices, a study released Tuesday shows that higher prices benefit key players involved in the distribution -- not the development -- of drugs. Consumers and Medicare foot the bill.

Insurance companies, investors and middlemen are making billions of dollars off prescription drugs – even when they don’t research, develop or make the pills themselves, according to a report out Tuesday from Democrats on the U.S. Senate Finance Committee.

“The various financial arrangements between different businesses in the pharmaceutical delivery system means that every part of the supply chain – except patients and the Medicare program – stand to benefit from higher prices in some way,” Sen. Ron Wyden, D-Oregon, wrote of the report’s findings.

“A Tangled Web: An Examination of the Drug Supply and Payment Chains,” builds on a bipartisan investigation released three years ago, which looked into the $84,000 that Gilead Sciences charged for a 12-week treatment course of its hepatitis C treatment, Sovaldi.

That earlier investigation, led by Wyden and Iowa Republican Chuck Grassley, found that Gilead put its own profits ahead of the best interests of the American people. Noting that the same treatment was available for under $400 in India, Grassley unsuccessfully urged Congress to legalize prescription drug imports from overseas.

The new report aims to take a step back, drawing on Medicare data to understand the complex mix of business relationships and incentives that have contributed to a rapid rise in drug prices. The United States spent $328.6 billion on prescriptions in 2016, double what it spent in 2002. And spending on prescriptions is climbing faster than on any other health care sector.

The key findings released today show the industry has lots of incentives to raise prices:

  • Middlemen known as pharmacy benefit managers often get paid more from drug makers when prices go up – even though these companies are supposed to be negotiate lower prices.

  • Insurance companies that sell Medicare Part D plans make more money when they choose to cover more expensive drugs – even if those costly drugs result in higher out-of-pocket costs for their members.

  • The wholesale distributors that buy drugs in bulk from manufacturers and deliver them to pharmacies profit from higher prices. AmerisourceBergen, ranked the 12th largest company on the Fortune 500 list, has told investors that if drug prices don’t keep climbing, its operations could suffer.

Reviewing the report’s highlights, officials at AARP, an advocacy group for people over age 50, said that they are also concerned about the tangle of business relationships that drive up drug costs.

"AARP opposes any activities that take place in the prescription drug supply chain -- including wholesalers, pharmacy benefit managers, and pharmacies -- that artificially inflate prescription drug prices,” AARP spokesman Greg Phillips said in an email.

Wyden wrote that the report, which does not recommend specific action, repudiates a Trump administration plan for lowering drug prices. The president’s proposal relies on regulatory changes that would not require legislation and on pharmaceutical companies to voluntarily lower prices. Senate Democrats say that’s inadequate.

Republican Grassley, meanwhile, is now pushing to save on drug costs with legislation to speed the introduction of generic medications.

Though the report does not advocate specific action and says blame for high medication prices is spread across the health care industry, Wyden said the document’s findings bolsters his own effort to add more transparency to the complex world of drug pricing.

“Bold action and greater transparency are sorely needed to protect American families from financial hardship while ensuring their access to essential care,” Wyden said.

“These findings beg for action from Congress, the administration and every stakeholder in the supply and payment chain to once and for all lower the cost of pharmaceutical drugs for patients and taxpayers,” he said.

Reach Courtney Sherwood at [email protected].

Correction: This article was amended to reflect the age associated with AARP members.

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If the State distributed drugs like they do whiskey it could bargain the prices on drugs and substantially lower them.  An example is the VA which pays on average 40% less for their drugs than on the private market.  Also, it would lower the rate of increase thereby slowing down the medical inflation rate.