BCBS Drug Price Analysis

By November 26, 2018 Commentary

Along with hospital systems, my favorite health care villains are drug companies.  (But there is always government regulators and legislators to make them both look good by comparison.)  An updated analysis from the Blue Cross Blue Shield Association finds, drum roll, that our medication manufacturers, who according to the ads I see on television are so concerned about our welfare, are continuing to raise prices at a rapid, and economically unjustifiable, rate.   (BCBS Analysis)    Using data submitted by Blue Cross plans, the analysts find that drug spending is about 20% of total health costs for commercially insured members.  That spending increased at about 2%, an acceptable amount, from 2016 to 2017, but the components tell a different story.  Patent-protected traditional drugs spending rose 5% and patent-protected specialty spending by 10%.  Only the fact that generics are 83% of all prescriptions and tend to have very small price increases kept total spending on medications down.  The ratio of spending is flipped compared to number of prescriptions, while being about 17% of prescriptions, branded drugs account for 79% of all medication spending.  And branded specialty drugs are even worse, they are only 3% of all brand prescriptions but 34% of that category’s spending.  As with any health spending, expenses for drugs are a combination of utilization and price.  Price is by far the dominant factor in drug spending rises.  Branded drugs for rheumatoid arthritis, certain insulins and cancer medications are particular sources of abuse, including in some cases nefarious efforts to suppress bio-similar or generic competition.

Aside from the raw greed demonstrated by this pricing behavior, it is ultimately just stupid.  Eventually there will be a severe backlash, unfortunately probably in the form of some stupid government law or regulation.  There is no economic justification for higher prices.  Costs are not going up and manufacturing and other costs should actually decline as scale rises.  Maybe the drug companies could even stop spending so much money on direct-to-consumer and other marketing and advertising campaigns, if they need to increase profits.  The reason prices are high in the first place and keep going up is patents, pure and simple.  And a patent is a government-granted monopoly.  Although I have nothing in common with the Bernie Sanders crowd, as I tend to favor real progress as opposed to pro-regressiveism, I am glad to see someone finally recognizing that the government can use this monopoly patent-granting power to control prices.  As long as drug manufacturers aren’t going to exercise sensible pricing restraint, they deserve whatever they get in terms of government limits on that pricing behavior.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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