Pharmaceutical Manufacturers and Researchers of America have responded to my item from Tuesday, in which I discussed a new report projecting higher-than-expected growth for the drug industry. So has IMS Health, the global consulting firm that produced the report.
In my item, I suggested that the IMS report attributed the higher growth--in part--to health care reform. An article in the Huffington Post, based on the same information, made a similar argument based on the same information.
PhRMA and IMS say that both articles are misleading. In the last twenty-four hours, I've gone back and forth with both of them over exactly what they are arguing--and whether they are right. I remain uncertain and am continuing that discussion now, bringing in some outside experts.
But because it's been a full day since they've contacted me, I thought I should post their responses without further delay. So I've done so, below.
PhRMA Statement on Prescription Medicines Spending
Washington, D.C. (November 11, 2009) — Pharmaceutical Research and Manufacturers of America (PhRMA) Senior Vice President Ken Johnson issued the following statement today regarding IMS Health’s revised forecast for prescription medicine sales growth in the U.S.:
“Online stories suggesting that America’s pharmaceutical industry will reap substantial benefits as the result of comprehensive health care reform are misleading and, in some cases, inaccurate because they are based on incomplete and outdated information.
“Projecting annual prescription drug sales is notoriously tricky, evident by the fact that IMS Health has released three different forecasts for 2009. Most troubling, the IMS report is based on incomplete information because it does not take into account discounts and rebates which can significantly lower the cost of drugs to payers.
“In some ways, it’s like trying to project annual U.S. auto sales by adding up sticker prices. That’s not reality. How many people actually pay full price for a car? Similarly, drug manufacturers often offer steep discounts and rebates through private negotiations. Medicare Part D is a good example. The Medicare Trustees, who unlike IMS have access to rebate data, report that rebates in the Medicare prescription drug program reach 20%-30% for many brand-name drugs and have increased over the past several years.
“The IMS forecast is incomplete in other ways, too. For one thing, it does not include key elements of health care reform legislation now pending before Congress, including a large increase of 8 percentage points in the base formula for the rebates that brand manufacturers pay in Medicaid. Nor does the report take into account the fact that Medicaid eligibility could be expanded to tens of millions of Americans who then would have access to lower-priced medicines.
“Most curious, however, is the notion that pharmaceutical sales will increase dramatically during the forecast period when major coverage expansions won’t even kick in until 2013 or 2014, depending on what’s in the final bill.
“The report also fails to take into consideration the 50% discount that companies will provide to most seniors and disabled Americans who hit the so-called ‘donut hole’ in Medicare Part D. That provision alone is expected to save beneficiaries with spending in the coverage gap as much as $1,800 in 2011. What’s more, under the House-passed bill, our companies will continue to provide that discount after the coverage gap is eliminated. These would be statutorily-mandated discounts – not voluntary discounts as some have suggested.
“Despite what critics say, coverage expansions are not expected to generate a material upside for America’s pharmaceutical research and biotechnology companies.
“Nearly 60% of the uninsured today are under the age of 35 and relatively healthy. What’s more, most of the new prescriptions – projected to be as high as 75% – will be for generic medicines; and, finally, many patients who previously purchased medicines without insurance at full retail price will benefit from negotiated discounts by private insurers and substantially increased statutory price controls for expanded Medicaid eligibility.
“Our best estimate of the net impact of health reform on industry revenues is modest, ranging from a potential gain of 1% to loss of 2%.
“Finally, IMS forecasts continue to project that prescription drug costs will grow much more slowly than they did just a few years ago and well below their long-term average. Such findings are consistent with the most recent government data. Here are the facts:
- Prescription drug spending growth fell to 1.3 percent in 2008, according to IMS Health, and is projected to remain ‘at historically low levels’ in 2009. The latest available data from the Centers for Medicare and Medicaid Services (CMS) also show that prescription drug spending in 2007 grew at the lowest rate in 45 years.
- The Congressional Budget Office has reported that ‘from 2004 to 2007, drug expenditures grew by an average of just 3.2 percent per year, slightly less than the rate of growth in overall health care spending.’
- Prescription drug prices are also rising more slowly than overall medical inflation, according to the government’s Consumer Price Index, which includes a blend of brand and generic drugs that reflects what consumers actually buy. It shows that prices for prescription medicines grew just 2% in the 12 months ending August 2009, compared to 3% for overall medical care.
- CMS reports that prescription drug spending is a small share of total health care cost growth, accounting for just 8 percent of cost growth in 2007, compared to 18 percent in 2002; other health services such as hospitals, doctors, nursing homes and administrative costs accounted for the other 92 percent.
“Prescription medicines represent a small and decreasing share of growth in overall health care costs in the United States. Not only is the current rate of growth for prescription medicines historically low, but the recent decline in drug spending growth has contributed to the lowest rate of total health care growth in the past decade.
“Discovering and developing new medicines is an inherently risky and expensive business. Companies spend, on average, 10 to 15 years and $1.2 billion researching and developing just one innovative medicine. And for biologics, which represent the future of medicine, companies devote an additional $250 million-$450 million to building specialized R&D facilities.
“Most importantly, despite their small share of health costs – relative to other health services – medicines are yielding major health advances. For instance, prescription medicines have played a key role in the dramatic declines in death rates resulting from cancer, heart disease and HIV/AIDS in recent years. Clearly, innovation is the driving force behind medical progress.
“Medicines also can help slow the growth rate of health costs. Recent research has estimated that delaying the onset or slowing the progression of Alzheimer’s disease by five years could save $100 billion per year by 2020 in Medicare and Medicaid costs. In addition, a recent study in the Journal of the American Medical Association found that effective treatment of diabetes with medicines and other therapy yields annual health care savings of $685 to $950 per patient within one to two years.
“Today, treatment of chronic conditions accounts for nearly 75 percent of all health care spending. Reducing the need for health care services because fewer Americans have costly conditions like diabetes and heart disease will pay both human and economic dividends.
“These two complementary goals – improving the health of patients in America and reducing the growth of overall health care costs – are at the core of ongoing efforts to reform our nation’s health care system.
“As Congress and the Administration continue to work towards comprehensive health care reform, we remain committed to helping ensure that all Americans have access to high-quality, affordable healthcare coverage and services. We will continue to be a constructive partner to help pass a comprehensive health care reform bill that can get to the President’s desk this year.”
The Pharmaceutical Research and Manufacturers of America (PhRMA) represents the country’s leading pharmaceutical research and biotechnology companies, which are devoted to inventing medicines that allow patients to live longer, healthier, and more productive lives. PhRMA companies are leading the way in the search for new cures. PhRMA members alone invested an estimated $50.3 billion in 2008 in discovering and developing new medicines. Industry-wide research and investment reached a record $65.2 billion in 2008.
IMS Media Statement
IMS Health issued the following statement on online media reports regarding the impact of healthcare reform on U.S pharmaceutical market sales.
Online media reports that IMS Health is predicting U.S. healthcare reform measures – combined with a projected upswing in the economy – will lead to a net gain of more than $137 billion in total U.S. pharmaceutical market sales over the next four years are misleading and inaccurate.
The cumulative $137 billion difference between the April and October 2009 forecasts takes into account a large number of factors impacting the pharmaceutical and healthcare industries. These include the macroeconomy, the changing mix of innovative and mature products, generics, the rising influence of healthcare access and funding on market demand, along with the effect of any potential legislation. The direct impact of current U.S. healthcare reform measures embedded in the IMS forecast is less than one percent of projected total industry sales through 2013.
The IMS forecast, updated semi-annually, includes branded and generics products, including both small molecules and biologics. Sales are calculated at the ex-manufacturer level and exclude off-invoice discounts and rebates.