Drug prices soaring beyond inflation rate, necessitating action, says HHS

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For decades Americans have spent more on prescription drugs than people in other countries. The Biden Administration has been involved in ongoing efforts to stem this trend, making prescription drugs more affordable to both improve public health and provide economic relief to Americans. Two new reports highlight the pervasiveness of the cost trend.

The U.S. Department of Health and Human Services released the reports, which illustrate the urgency of addressing skyrocketing prescription drug costs. 

HHS' analyses of prescription drug prices from 2016-2022 show that if the Inflation Reduction Act had been in place from July 2021 to July 2022, more than 1,200 prescription drugs potentially would have been subject to the new provision requiring drug manufacturers to pay rebates to Medicare if they enact price increases greater than inflation for drugs. Price increases on those drugs in the month the price change took effect averaged more than 30%.

The publication of these reports coincides with a key date related to a provision of the Inflation Reduction Act, which requires drug manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation for the 12-month period beginning October 1. A similar provision for Part B drugs takes effect beginning in January 2023. In addition, the Act requires the federal government to negotiate drug prices on certain high-spending prescription drugs for Medicare beneficiaries.

The administration predicts the Inflation Reduction Act will result in lower healthcare costs and prescription drug price relief for millions of Americans.

WHAT'S THE IMPACT?

The report focusing on price increases for prescription drugs found that high drug prices create affordability challenges for patients and the healthcare system. Among existing products, increases in average prices over time have added to these challenges.

Most prescription drug price increases occur in either January or July each year, with the greatest number taking place in January. The number of increases in both months during 2022 was higher than in previous years.

In January 2022, the average list price increase was nearly $150 per drug (10%), and in July 2022 it was $250 (7.8%). Several drugs increased their list prices by more than $20,000, or by more than 500%.

There were 1,216 products whose price increases during the twelve-month period from July 2021 to July 2022 exceeded the inflation rate of 8.5% for that time period, the report found. The average price increase for these drugs was 31.6%.

The Inflation Reduction Act introduced a new requirement for manufacturers to pay rebates for drugs in Medicare Part D when price increases exceed inflation, which was designed to reduce the frequency and size of drug price increases.

Meanwhile, the report on prescription drug spending found that in 2021 the U.S. healthcare system spent $603 billion on prescription drugs, of which $421 billion was on retail drugs before accounting for rebates. Spending growth on drugs was largely due to growth in spending per prescription, and to a lesser extent by increased utilization (i.e., more prescriptions).

Drug spending is heavily driven by a relatively small number of high-cost products, results showed. The cost of specialty drugs has continued to grow, totaling $301 billion in 2021, an increase of 43% since 2016. Specialty drugs represented 50% of total drug spending in 2021. While the majority (80%) of prescriptions that Americans fill are for generic drugs, brand name drugs accounted for 80% of prescription drug spending in both retail and non-retail settings, with little change over time. The top 10% of drugs by price make up fewer than 1% of all prescriptions, but account for 15% of retail spending and 20%-25% of non-retail spending.

Several provisions in the Inflation Reduction Act address drug pricing, including allowing the Secretary of HHS to negotiate prices in Medicare Parts B and D for selected medications and introducing Medicare rebates for drug prices that rise faster than inflation. These provisions may impact future drug spending trends.

THE LARGER TREND

While prescription medication prices are no longer the fastest-growing commodity or service, prescription drug costs have still increased 2.5% since the beginning of the COVID-19 pandemic, according to data published in February by GoodRx.

In 2021, the cost of car rentals, tobacco, beef and moving expenses all outpaced the cost of prescription drugs. Yet drug prices have also historically grown faster than the rate of inflation: Since 2014, drug prices have increased 35%, while the cost of all items and services has increased 19%.

In July, Senate Democrats carved out a deal on legislation that would attempt to lower prescription drug costs for Americans by allowing Medicare to negotiate for lower drug prices. According to details released by the Senate, HHS will select 10 drugs eligible for negotiation starting in 2026, with the number of drugs increasing incrementally in subsequent years – 15 in 2027 and 20 by 2029.

An October 2021 poll from the Kaiser Family Foundation found large majorities of American voters across all political stripes favor letting Medicare negotiate drug prices, and most don't buy into the argument that high drug prices are needed for drug companies to invest in new research.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com