Protection Against Continued Drug Price Inflation

Jan 15, 2016
By being creative with our contracts with drug manufacturers, and by taking on our own financial risk, Express Scripts is delivering more value and budget predictability to the payers and patients we serve.

Drug prices are on the rise in the U.S., and the increases are occurring with greater magnitude and frequency than they did just a few years ago. We are now at a point where nearly 20% of brand-name drugs are experiencing annual price increases greater than 20%.

These price spikes are particularly threatening to patients who use specialty drugs, which treat the most complex and chronic conditions.

Rising Drug Prices Across the Industry

In Monday’s Wall Street Journal article “Drugmakers Raise Prices Despite Criticisms,” reporter Peter Loftus recounted the latest chapter of this trend and its cumulative effect:

  • Drugmakers didn’t let up on price increases with the start of a new year, demonstrating the industry’s pricing power in the face of mounting criticisms of prescription costs in the U.S. Some of the increases add thousands of dollars to the cost of already expensive drugs, and come on top of repeated price hikes in recent years…. In recent years, it has been common for drug companies to push through annual price increases in at least the high single digits around Jan. 1 for many brands–and in some cases additional increases throughout the year–analysts said. But this latest round of price hikes is significant in light of the political pressure.… Politicians, health-care payers, doctors and patients have criticized drug pricing in recent months, saying medicines are out of reach for many patients and straining health-care budgets.

It’s Not Really “Inflation”

According to the Express Scripts Prescription Price Index, the average price for the most commonly used brand-name drugs more than doubled (up 127%) in the U.S. between 2008 and 2014.

These price increases are typically called “inflation,” but that’s a bit of a misnomer. Inflation traditionally refers to the average price increases across an entire economy. The cost of raw ingredients and energy increases, and therefore the price of the final product must increase as well. However, true national inflation for the U.S. economy from 2008-2014 – as measured by the Bureau of Labor Statistics’ Consumer Price Index – was 11.24%, far below the 127% increases imposed by brand drug manufacturers.

The Need for a Bold, Market-Driven Solution

Loftus’ article concludes with a sentiment that payers and patients are facing an uphill battle in trying to stem the tide of these price increases:

  • The new increases despite this criticism “signals there’s still pricing power,” Jefferies analyst David Steinberg said in an interview. “Unlike other countries, there’s no mechanism whereby regulatory authorities can control price.”

In the absence of such prices controls, Express Scripts’ proactive solutions deliver more value to the clients and patients we serve. On January 1, we launched our Inflation Protection Program to address this portion of national drug spend that has continued to challenge payers. For every branded product – on formulary or off – we are now shielding our participating clients from the full cost impact of these year-over-year price hikes.

All payers fear the unknown costs associated with future brand-drug price inflation. By being creative with our contracts with drug manufacturers, and by taking on our own financial risk, Express Scripts is delivering more value and budget predictability to the payers and patients we serve.

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Lab Staff
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