Bryan Caplan on prices and shortages


With the Democrats’ big shot on major drug pricing reform hanging in the balance, the Congressional Budget Office has released a new report showing that the average net price of brand-name prescription drugs in Medicare Part D has more than doubled from 2009 to 2018.

Overall, the average net price of a prescription — the cost after discounts and rebates given to private insurers and federal programs — fell from $57 in 2009 to $50 in 2018 in the Medicare Part D program and from $63 $ to $48 in the Medicaid program, according to the CBO’s latest prescription drug expenditures, uses, and prices report. This partly reflects the increased use and lower average price of generic drugs.

However, the average net price of brand name drugs skyrocketed during this period, from $149 to $353 in Medicare Part D and from $147 to $218 in Medicaid.

Senate Finance Committee Chairman Ron Wyden (D-OR) said in a statement that the report “underscores the urgent need” for change.

It comes as Senate Democrats seek to forge a bill that would allow Medicare to negotiate prices for some of the most expensive drugs, force drugmakers to pay rebates if their prices rise faster than inflation. , would cap the cost of insulin and create a price premium. – cap on out-of-pocket expenses for seniors, among other provisions.


But without the backing of Sen. Joe Manchin — who derailed Democratic efforts to pass the same provisions as part of the Building back better right before Christmas — or any Republican — this legislation remains unlikely to pass.

“It’s time to give Medicare the tools to fight high prices,” Wyden said in response to the recent CBO report. From 2010 to 2017, net prices for brand-name drugs rose an average of 6.3% faster than inflation per year, according to his office.

Sean Dickson

Sean Dickson, director of the West Health Policy Center in Washington, DC, attributes the increased spending to higher introductory prices and longer protections from generic competition.

“We’re seeing a much more aggressive defense of these monopoly drugs, as brand-name manufacturers have focused on getting as much money as possible out of existing products,” he said.

National spending on prescription drugs has grown relatively steadily over the past few decades, with a few exceptions. It saw a huge increase after 1995 as a number of drugs reached blockbuster status, including statins for high cholesterol, ACE inhibitors for high blood pressure, proton pump inhibitors for acid reflux and gastric ulcers, as well as antidepressants and antipsychotics for mental illnesses.

When those patents expired, cheaper generics were introduced, around the same time the Medicare Part D program was created in 2006. As a result, per capita spending on prescription drugs stabilized at around $940. in the mid-2000s and fell to $900 by 2013 (all drug expenditure and price estimates in the report are in 2018 dollars). There was another spike between 2013 and 2015, which coincided with the introduction of expensive hepatitis C drugs.

Overall, national spending on prescription drugs has grown from $30 billion in 1980 to $335 billion in 2018 (expressed in 2018 dollars), the CBO said. During this period, real per capita spending on prescription drugs increased more than sevenfold, from $140 to $1,073. Spending on prescription drugs rose from $74 billion in 2009 to $120 billion in 2018 under the Medicare Part D program and from $18 billion to $32 billion in Medicaid.

In recent years, Dickson said drugs have increased in price above the rate of inflation and may reimburse some of those increases to insurance companies through drug benefit managers.

“But when they launch a new drug, they launch it at the high, overly inflated price of a higher drug in this type of industry, and don’t offer the same discounts that offset price increases,” he said. -he declares. “And so we have this growth, where artificial price increases on existing products lead to higher introductory prices for new products”

Manchin told reporters earlier this week that he was ready to talk to BBBA Democrats, although he was “starting from scratch,” according to a BNC News report. Another recent CBO report — outlining how Medicare negotiations could reduce the amount of new drugs coming to market — doesn’t help Dems’ case.

According to a new slideshow released by the CBO last week, an updated model suggests a 10% long-term reduction in the number of new drugs, while a previous CBO report from August estimated that 8% new drugs less would enter the market over 30 years. The new model suggests that we could see 40 fewer new drugs in the third decade, compared to the 34 fewer predicted by the old model.

“What I think is really important to understand about the CBO report is that their modeling shows that these drugs, whether it’s 8% or 10%, are drugs that were going to be marginally profitable to begin with. “Dickson said.

Hypothetically, Dickson says the drugs that wouldn’t make it to market would likely be the ones so close to that break-even point — the “me too” drugs that jump on the bandwagon and add nothing “therapeutically valuable.” “, he mentioned.

“It’s not, you know, a random choice, we’re going to pick 10% of all the drugs that were going to come to market and remove them,” he said. “Companies will only take those that were marginally eligible to come to market to start with in terms of profitability, and these are unlikely to be drugs that have a huge health benefit or help a lot of people. .”

PhRMA blasted the BBB bill’s passage through the House in November, saying it will “throw sand in the gears of medical progress.”

The version that passed the house expected to save government (and industry) about $76 billion over 10 years, and about $85 billion in inflation-related penalties if drug prices rise above certain levels. That’s a far cry from House Speaker Nancy Pelosi’s old drug price negotiation bill, known as HR3, that the CBO scored in August as $456 billion in savings. over 10 years.

Medicare’s negotiation deal also includes many limitations, and it’s unclear what kind of bumps, if any, the deal will make on longer-term drug prices, or for those outside of Medicare.

“More importantly, it would set new precedents for the market, and in particular, I’m talking about the combination of these trading provisions with the inflation penalties that are part of it,” Dickson said.


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