Follow the Money

  • by: Peter Pitts |
  • 01/14/2020
Nearly 50% of Brand Medicine Spending Goes to the Supply Chain and Others

Nearly half of total spending on brand medicines – the sum of all payments made at the pharmacy or paid on a claim to a health care provider – went to the supply chain and other entities in 2018, according to a new analysis from the Berkeley Research Group (BRG). This transformative research shines a spotlight on the misaligned incentives in the supply chain and underscores the need to fix the rebate system.

BRG found that hospitals, health insurers, pharmacy benefit managers, the government and others got nearly 50% of what was spent on brand medicines in 2018, up from 33% five years prior. By contrast, innovative biopharmaceutical companies that research, develop and manufacture medicines retained just 54% of total point-of-sale spending on brand medicines.

According to the analysis, the share of total spending on brand medicines that biopharmaceutical companies retain has been steadily declining as rebates and discounts have increased. Between 2015 and 2018, the amount innovative biopharmaceutical companies retained from the sale of brand medicines increased, on average, 2.6% annually, in line with inflation. In this same timeframe, companies brought nearly 200 new innovative treatments and cures to patients.

Meanwhile, nearly half of the increase in the total amount spent on brand medicines went back to payers during this same time period. And 20% of the overall increase went to hospitals, pharmacies and other health care providers, which is the same amount that went to biopharmaceutical companies that research, develop and manufacture medicines.
The amount hospitals, pharmacies and other health care providers retained on the sale of brand medicines nearly doubled between 2013 and 2018, increasing from $24.7 billion to $48.6 billion. This trend was primarily driven by unprecedented expansion in the 340B drug pricing program. In fact, the amount hospitals and other 340B entities retained from the sale of brand medicines purchased through the 340B program was 9 times larger in 2018 than in 2013.
We are committed to ensuring patients benefit from significant discounts and rebates at the pharmacy counter, and this analysis reaffirms the need to look at the entire supply chain to fix misaligned incentives. We must work to fix the broken rebate system, as well as programs like 340B, to lower out-of-pocket costs and solve patient affordability challenges.

The full study from BRG can be viewed here.

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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