Research: Drug prices are unrelated to rising health care costs

4/28/2017

SAN FRANCISCO — A belief that drug prices are the main culprit behind rising health care costs is a “misnomer,” according to a new study published by the Pacific Research Institute.


“The misnomer that drug prices are a primary cause of the health care affordability problem persists, in part, due to the overly complex pricing system for pharmaceuticals. For example, the list prices for pharmaceuticals in the U.S. market vary, often significantly, from the drugs’ actual transaction prices. The actual transaction price (also known as the net price) are the prices including the large discounts, negotiated payments, and retrospective price rebates that, relative to the total expenditures, are quite sizable,” wrote Wayne Winegarden, Ph.D., in the report, titled “U.S. Pharmaceutical Pricing in Context: A comparison of U.S. pharmaceutical trends to U.S. health care trends, and pharmaceutical trends in major OECD countries.”


Winegarden added pharmaceutical prices typically increase at a faster rate when there is an acceleration in the number of new pharmaceutical innovations, which should be expected. “The data for 2016 illustrate a reduction in pharmaceutical innovations that are also associated with a reduction in the pharmaceutical price increases. In other words, the recent acceleration in pharmaceutical prices is consistent with the historical norm of an innovation driven price acceleration; and, as the surge in innovations is waning, the trend in pharmaceutical inflation is decelerating toward its historical norm vis-à-vis health care inflation,” he wrote.


With respect to overall expenditures (as opposed to prices), the growth in total health care expenditures generally outpaced the growth in total U.S. expenditures (or GDP) since 1960; but, the total expenditures on pharmaceuticals relative to overall health care expenditures have risen and fallen in an unrelated manner, the author wrote. “This inconsistent relationship between the change in expenditures on prescription drugs and the growth in national health care expenditures is an indication that there is no definitive association between rising pharmaceutical expenditures and rising total health care expenditures. Taken together, these trends indicate that pharmaceuticals are not driving the health care affordability problem, instead systemic problems must be addressed in order to improve overall health care affordability.”


To read the full report, click here:


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