Will Drug Price Hikes Impact Drug Spending?

November 28, 2018

Despite a scolding from President Trump over drug price hikes, drug giant Pfizer announced it will raise the prices of 41 medications in January. That’s 10% of its entire drug portfolio.

Despite a scolding from President Trump over drug price hikes, drug giant Pfizer announced it will raise the prices of 41 medications in January. That’s 10% of its entire drug portfolio.

According to a Pfizer statement, the increase in list price to this subset of the company’s portfolio will be 5%. The only exceptions are three products that have a 3% increase and one product that is increasing 9% due to the completion of two extensive development programs that led to the recent FDA approvals of two new medical uses that meet unmet patient needs.

“These list price increases are expected to be offset by higher rebates and discounts paid to Insurance Companies and Pharmacy Benetit Managers and the net effect on revenue growth in the U.S. in 2019 is expected to be zero,” according to the Pfizer statement. “Given the higher rebates and discounts, we expect that the healthcare system will share those benefits with patients, so they do not experience higher costs for their medicines. In 2018 the net impact of price increases on revenue growth is projected to be a negative 1% in the U.S. compared with 2017.”

Back in July, Trump tweeted: “Pfizer & others should be ashamed that they have raised drug prices for no reason.” Later, Trump tweeted that Pfizer agreed to roll back price hikes after he meet with the drug maker’s CEO: “Pfizer is rolling back price hikes, so American patients don’t pay more. We applaud Pfizer for this decision and hope other companies do the same.”

Related: More Manufacturers Freeze Drug Prices: Will Positive Momentum Last?

The Trump Administration Blueprint to lower drug prices and reduce out-of-pocket costs, known as American Patients First, contains several different elements, one of which is encouraging pharma manufacturers to reduce brand drug pricing.

Which medications undergo a price increase will determine the impact the blueprint has on drug spending, according to Jeni Burckart, a licensed pharmacist, prominent student loan expert and senior director of healthcare for Tuition.io, a student loan management company in Santa Monica, California.

“Pfizer currently produces two of the top 10 medications paid for by Medicare Part D, pregabalin and apixaban,” Burckart says. “These two drugs accounted for approximately $4 billion in Medicare Part D drug spending in 2016. If Pfizer increases the price of these medications by the 5% reported in the announcement, we could expect to see an increase Medicare Part D spending of $200 million in its first year, on these two medications alone.”

Pfizer signaled in July that it would return to its normal practice in early 2019, according to John Driscoll, CEO, CareCentrix, a manager of post-acute services with a core focus of making the home a center of care.

“Their shareholders expect price increases, and Pfizer’s stock price depends on it,” Driscoll says. “Pfizer is calculating that President Trump has lost interest, and that it can push back against the White House if it has to.”

One particularly interesting aspect of this announcement is an examination of the specific medications that are undergoing an increase, and which of those are increasing at a higher rate, according to director of clinical services for CompleteRx, a pharmacy management consultancy headquartered in Houston.

“I do think that both the public and healthcare providers need to have a better understanding of the cost vs. benefit ratios of these medications,” Rubin says. “For those medications that come at such a high cost, we need to ask: how much benefit will the patient gain from using them and, based on that assessment, are there lower-cost alternatives we could consider? Similarly, since many of these more expensive brand patented medications are used for chronic conditions, we could be in a position to avoid using them in the hospitals or, in the case of many patients with acute illness, we could run a cost-benefit analysis on whether those expensive medications would be optimal once the patient is ambulatory.”

Many of the new agents, according to Rubin, like the cholesterol and anti-diabetic agents, could be started by a patient’s primary care physician, meaning that the challenges raised by increased prices could be answered outside of the institutional setting.

Short-, long-term impact

"In the short term, price increase announcements mean little-it was a one-day story with the general press with a slightly longer half-life with the healthcare press and policy makers," says Jeff Gourdji, partner, Healthcare Practice Lead, Prophet, a marketing & growth strategy consultancy based in San Francisco. "The move was telegraphed by the Pfizer CEO, who suggested it was coming earlier this year." 

Longer term, there are a few ways to look at this move, according to Gourdji.

“For policy makers, no one should be surprised when profit-seeking organizations-which pharma companies are by charter-seek to maximize their profit,” Gourdji says. “If you look back 10 years ago, ‘jaw boning’ by politicians and bad PR didn’t keep insurance companies from underwriting. People with pre-existing conditions were often denied coverage. It took a policy change to end the practice. Similarly, if policy makers want to slow drug prices, bad publicity alone is unlikely to have much effect.”

Pharmaceutical executives will have to determine where and how they want to participate in the march to greater value-based care, according to Gourdji.

“If they decide it’s inevitable and has potential to disrupt their business, they might decide to be proactive,” he says. “And if so, they’d bring tremendous assets in terms of scale, margin structure and depth in critical therapeutic areas like diabetes, oncology, etc. However, they are ‘patient relationship’ poor, as they do not have direct relationships with patients like providers and even payers do. If pharmaceutical executives have only a schedule of regular price increases without a view of how it supports their transition to value-based care delivery, it is likely short-sighted and certainly not supportive of developing trust with either patients or healthcare providers.”