PhRMA Baseline For Rx Costs: 7% Of Health Care Spending Is On Brands

Brand name drugs account for 7% of health care spending, Pharmaceutical Research & Manufacturers of America President Alan Holmer said during The Economist's Annual Pharmaceutical Roundtable in Philadelphia Nov. 19.

Centers for Medicare & Medicaid Services data show that prescription drugs overall represent 10% of health care spending, a figure frequently cited by PhRMA.

However, Holmer noted, that total includes spending on generic drugs as well as on pharmacy mark-ups and wholesaler distribution, leaving just 7% accounted for by brand purchases.

"I think it's fair to say that a huge part of the debate about health care affordability - that is, the cost of brand name drugs - is focused on 7% of the costs," Holmer said. "Although medicines are a large and growing share of how patients' illnesses are treated, they're a relatively small share of total health care costs."

The focus specifically on brand name drug costs dovetails with FDA Commissioner McClellan's message to the Canadian government during a ceremony announcing a new Memorandum of Understanding between the U.S. and Canada on regulatory information exchange (see ¹ (Also see "Foreign Generic Drug Use Is Key To Rx Price Equity, FDA’s McClellan Says" - Pink Sheet, 24 Nov, 2003.) ).

During the Nov. 18 signing ceremony, McClellan repeated his arguments that countries like Canada should bear more of the costs of drug development.

However, he declared, that does not mean Canada needs to spend more on drugs overall. McClellan maintained that Canada has higher generic drug prices than the U.S. and could afford to pay more for brands if it paid less for generics.

Although PhRMA will continue to counter the misperception that prescription drugs are a significant portion of total health care spending, the association hopes to shift the debate about prescription drugs away from the "line item" mentality, Holmer said.

"If we change the frame of debate from its exclusive focus on the drug line item to quality health care, we will do better for patients," Holmer declared.

During PhRMA's annual strategic planning session, the trade association agreed to add "affordability" to "access" as key themes of its advocacy agenda following the wrap-up of the Medicare debate (² (Also see "PhRMA Priorities After Medicare Rx: “Access And Affordability”" - Pink Sheet, 17 Nov, 2003.), p. 3).

Holmer noted that drug manufacturers sponsor more than 140 patient assistance programs providing over 1,400 medicines to the uninsured.

"PhRMA's newly updated projection is that these programs will provide free medicines to an estimated 6.2 mil. Americans in 2003," he said.

Holmer spoke as Congress was preparing to vote on the conference agreement to expand drug coverage under Medicare.

Holmer provided a careful endorsement of the Medicare Rx bill and said PhRMA plans to support its passage. "It's not perfect, but it's a good bill that will make medicines more affordable and accessible to seniors and disabled persons."

PhRMA is encouraged by the conference agreement because it relies on insurance coverage and competition, rather than price controls, to contain costs, Holmer said.

"The Medicare drug benefit delivered through competing private plans includes some basic safeguards for consumers," he said. "Such protections are compatible with the competitive markets in which purchasers will work hard to get the best deal for their customers."

The brand name industry has been advocating a private-sector based Medicare drug benefit for years, and the pending legislation would mark a significant victory for the trade association. PhRMA, however, has been reluctant to offer a public endorsement of specific legislative approaches to minimize backlash from the perception that a bill is favorable to drug companies.

The Generic Pharmaceutical Association has publicly endorsed the Medicare bill (which includes reforms to the Waxman/Hatch process). GPhA's endorsement made it easier for PhRMA to be more open about its support for the bill in the final days before the votes.