Drug industry group disputes NY Times drug price report

WASHINGTON —Stung by recent reports of a steep rise in wholesale drug prices in 2009, the branded pharmaceutical industry is fighting back with a vigorous defense of its pricing practices and its role in treating and managing disease.

Health researchers, including IMS Health, have tracked a broad trend in drug-price inflation throughout much of the year. But the Pharmaceutical Research and Manufacturers of America angrily reacted to a Nov. 16 article in the New York Times, which reported that wholesale pharmaceutical prices are rising at their highest pace in years, despite a drop in overall consumer prices. PhRMA termed the report “wrong and…misleading” in its focus and misguided in its characterization of the factors driving drug costs. In addition, noted PhRMA SVP Ken Johnson, the report failed to take into account the big role that rebates and discounts to managed care companies play in lowering brand-name drug costs.

“Focusing only on prices, as the Times did, can present a misleading picture of our sector,” Johnson noted. Drug makers, he said, “often offer steep discounts and rebates through negotiations with large payers, such as insurance companies. In fact, government reports show that rebates in the Medicare prescription drug program are often as much as 20% to 30% for many brand-name drugs and are higher now than when the program began in 2006.”

The Times touched off the controversy by reporting that the price hike for branded drugs is an average of roughly 9% over the past year, while the Consumer Price Index has fallen by 1.3%. The growth rate marked the highest drug-price inflation since 1992, according to one study cited by the newspaper.

Behind the rising prices, according to some reports cited by the article, are industry concerns over the impact health-reform legislation could have on pharmaceutical companies’ abilities to determine market prices, particularly as some lawmakers are calling for increasing curbs on drug prices as Medicare and Medicaid look for ways to save costs. But PhRMA strongly disputed that there’s a connection between drug pricing and health reform, and noted that some analysts ignore the cost-effective value that medicines bring to patient care.

The Times, Johnson asserted, “only tells half a story, using selected statistics to make a flawed assumption that an increase in drug prices must somehow be tied to healthcare reform.”

“In truth, price increases are the natural result of market forces,” he noted. “All companies make their own independent pricing decisions based on many factors, including patent expirations, the economy and the huge, sunk [research and development] costs, which typically exceed $1 billion for a single medicine.”

What’s more, Johnson said, “every single one of the pricing reports cited by the Times relies solely on pharmacy transaction data, which do not capture off-invoice rebates.”

The PhRMA executive also pointed out that the pharmaceutical industry has been hammered with job losses and sluggish sales, “due, in large part, to a rapid increase in the use of generics” and an economy on life support.

Neither PhRMA nor other groups disputed the broad reality of rising drug costs. A recent report on the pharmaceutical industry from research and consulting giant IMS also found a clear trend in rising drug prices. The latest IMS Market Prognosis, released in October, predicted that the value of the global pharmaceutical market in 2010 is expected to grow as much as 6% on a constant-dollar basis, exceeding $825 billion.

“Overall, market growth is expected to remain at historically low levels, but stronger-than-expected demand in the United States is lifting both our short- and longer-term forecasts,” said Murray Aitken, SVP healthcare insight for IMS. “The economic climate will continue to be a dampening influence in most mature markets, particularly in those countries with rising budget deficits and publicly funded healthcare systems. In the United States, pricing flexibility and inventory management actions are contributing to much higher growth than anticipated earlier this year and are the main reasons for the upward adjustment to our five-year forecast.”

Also driving growth of pharmaceutical revenues, according to IMS, were increasingly powerful drug retailers. “Pharmacy chains are more tightly managing their inventory levels based on expectations of patient demand, which has led to greater purchasing volatility than in previous years,” the research firm noted. “This also has played a role in unusually high sales growth in the first quarter of 2009 relative to forecast expectations.”

IMS is projecting the overall U.S. pharmaceutical market will grow 4.5% to 5.5% in 2009, and 3% to 5% next year. “While payers seek to limit price increases and boost the use of lower-cost generics, pharmaceutical manufacturers are expected to maintain their pricing practices, competing on the basis of clinical evidence and value,” the company noted.

Nevertheless, Johnson pointed out, “today, prescription medicines account for 10% of healthcare spending in America—the same as it was back in 1960. And what’s happened since 1960? For one thing, new cutting-edge medicines have helped to dramatically increase life-expectancy rates in America and have allowed patients with cancer, heart disease, diabetes and other devastating chronic diseases to live longer, healthier and more productive lives.”

“Unfortunately, medicines are always looked at as a cost and never seen as a savings—even though medicines often reduce unnecessary hospitalizations, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases,” he added.