Big Pharma is to blame for drug prices? Addressing claims shows that’s not case

New Jersey’s research-based biopharmaceutical industry is constantly developing new cures and treatments that benefit New Jerseyans and patients worldwide. Over the past two years, we all have witnessed firsthand the industry’s remarkable and rapid response to identifying, treating and inoculating against COVID-19 with innovative diagnostics, antivirals and vaccines.

At the same time, industry critics assert that biopharmaceutical companies are the root cause of whatever ails our country’s health care system. This conclusion is simply not based in fact, it creates a fundamentally inaccurate perception of the industry and it does a disservice to one of the pillars of New Jersey’s economy and the more than 400,000 New Jerseyans who are connected to our life sciences industry.

Let’s examine some key claims supporting this flawed assertion.

The claim: Biopharmaceutical companies sell their medicines to patients.

FALSE. Biopharmaceutical manufacturers sell to wholesalers, which, together with other players in the supply chain, add their markup and sell to retailers, which add their own markup and sell to patients. The result is that, today, more than half (50.5%) of the cost of brand medicines is absorbed in the supply chain.

The claim: Biopharmaceutical companies set the price at the pharmacy counter.

FALSE. The retailer, after its acquisition of the product from the wholesaler and the addition of its own markup, sets the price at the pharmacy counter. For this reason, prices can vary from pharmacy to pharmacy.

The claim: Biopharmaceutical companies set consumers’ out-of-pocket costs.

FALSE. Out-of-pocket deductibles and copays are set by a consumer’s insurance plan. These out-of-pocket expenses therefore vary by patient depending on their insurance plan’s level of coverage. Biopharmaceutical companies play no role in setting these out-of-pocket costs. In contrast, Pharmacy Benefit Managers, or PBMs, have an outsized impact on consumer out-of-pocket drug expenses. Drug manufacturers pay rebates of about $187 billion annually to PBMs, representing about 33% of the total price of medicines. However, unlike doctors’, hospital and lab fees, where the patient’s bill states and reflects the negotiated insurance discount that is applied to the price of the procedure or service, rebates and discounts on prescription drugs are rarely passed through to the consumer (compare, for example, when buying a car, the manufacturer’s rebate is passed on to the consumer rather than staying with the dealer or middleman).

In response to this situation, West Virginia in April 2021 became the first state to enact legislation requiring PBMs to share the savings and pass-through biopharmaceutical manufacturer rebates to consumers. This is the type of measure worth considering as a viable and effective means to reduce consumers’ out-of-pocket drug expenses.

The claim: Seniors are forced to pay exorbitant prices for their medicines.

FALSE. All seniors have access to Medicare Part D (whose average monthly premium for 2022 is $33),  with each senior being able to tailor coverage for their own specific pharmaceutical needs, and lower-income seniors also have access to the state’s Pharmaceutical Assistance to the Aged and Disabled, or PAAD, and Senior Gold programs for added coverage at no cost. Therefore, every senior citizen in New Jersey should have access to prescription drug coverage with affordable co-pays as low as $5.

The claim: Drugs are the leading cost of health care.

FALSE. Every year, the Centers for Medicare and Medicaid Services, or CMS, publishes an analysis, “The Nation’s Health Dollar: Where It Went.” For 2019, prescription drugs accounted for only 10% of the cost of health care, after hospitals at 31%, and physician and clinical services at 20%. Not only are these the same percentages as in 2011, but the prescription drug percentage has remained relatively static for the past 30-plus years.

Furthermore, 90% of all prescriptions are filled with generic drugs, and, according to analytics firm IQVIA, 90% of all consumers pay less than $500 a year in prescription drug costs.

We urge that, as opposed to unfounded and disparaging rhetoric, any discussion of ways to reduce health care costs for patients must be grounded in the facts, and that we work together to develop real, evidence-based solutions to help patients in need access their medicines in ways that also keep New Jersey the “medicine chest of the world.”

Dean Paranicas is the CEO of the HealthCare Institute of New Jersey, a trade association that serves as the voice for our state’s leading research-based biopharmaceutical and medical technology companies.