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Recent high-profile drug price increases are driving a national conversation about medication cost and access. Branded drug prices in particular are rising faster than the rate of inflation overall. But while branded drugs make up just 15 percent of all dispensed prescriptions, they account for 75 percent of pharmaceutical spend.1 So it’s imperative that we do everything we can to ensure that medications are accessible and affordable. One important part of this strategy is fostering competition to keep drug prices in check.
Competition is Key
In the pharmaceutical market, like in other parts of the economy, consumers benefit when producers have to compete to attract their business. Pharmacy benefit managers (PBMs), such as CVS Caremark, encourage this competition by leveraging their clients’ combined purchasing to negotiate lower prices with drug manufacturers. PBMs also compete among one another for health plan and employer clients, contributing to the incentive to negotiate the lowest-possible drug prices.
When Competition Works, Patients Benefit
There are many ways that patients benefit from pharmaceutical market competition. Here are three examples:
The Generic Marketplace
When patents for brand name drugs expire and generic medicines are allowed to enter the market, robust competition causes prices to plummet. According to the Generic Pharmaceutical Association, the use of generics over brand name drugs saved the U.S. health care system $227 billion in 2015.
Access to Breakthrough Cures
When a breakthrough hepatitis C drug was introduced to the market in 2014, its price of $1,000 a pill (about $84,000 for a full course of treatment) caused concern that the medication would be out of reach for millions of patients. A competing therapy was soon launched, and PBMs were able to leverage their negotiating power and tools such as formularies to achieve significant savings for customers. According to the Pharmaceutical Care Management Association, PBMs were able to negotiate lower prices for these breakthrough cures than other industrialized countries with government price controls.
Medicare Part D
More than 40 million Medicare beneficiaries receive their drug benefits through a Medicare Part D plan. Beneficiaries may choose among numerous plans that use PBM negotiations to make prescription drugs affordable and accessible. The Part D program is overwhelmingly popular among seniors and other Medicare beneficiaries with costs to the health care system that are significantly less than originally projected.
More Can Be Done
Federal regulations can slow down the process of introducing competition into the drug market. For example, it takes about three to four years on average to introduce a new generic medication. Supporting efforts to accelerate market competition, combined with continued public pressure on the companies that have adopted abusive pricing practices, can help patients avoid unnecessarily expensive medications. Visit CVS Health’s Rising Drug Prices information center to learn more about our efforts to contain drug costs.
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1 Percentage of all prescriptions in the US market for 2015 taken from IMS; Average cost range from “The 2016 Economic Report on Retail, Mail, and Specialty Pharmacies,” Drug Channels Institute, Jan 2016 (page 4).