Healthy People, Lower Costs
How High Can Pharmacy Costs Go Before America Breaks?
How High Can Pharmacy Costs Go Before America Breaks?
The New York Times described Humira as “the most lucrative franchise in pharmaceutical history.” But not all records are meant to be broken.
Despite making up only four percent of the global population, Americans account for more than 40% of the world’s pharmaceutical spending.
When leafing through the reams of depressing studies about how overpriced our medicines are, you will find that we pay 200-400% more than citizens of other developed countries for identical pharmaceuticals, even when accounting for rebates. Many of the drugs in question were developed right here in America with generous taxpayer subsidies, which only adds insult to injury.
The Humira Saga
Humira, an immunosuppressive drug used for treating conditions ranging from arthritis to Crohn’s disease, is perhaps the most egregious pharmaceutical grift that has been foisted upon the American people since the commercialization of insulin. Humira was developed by AbbVie, a division of Abbott Laboratories, and approved by the FDA on December 31, 2002.
When it entered the market in 2003, it was priced at $522 per dose. Patients typically take Humira every other week, which put the annual treatment cost at more than $13,000. At that time, America’s GDP per capita was about $40,000.
AbbVie then proceeded to increase the price not once, not twice, but thirteen times over the following decade. By 2013, it was being sold at $1,024 per dose. GDP per capita was $53,000 in 2013, meaning that these price increases were running far ahead of general inflation. However, AbbVie was staring down the barrel of a huge problem – Humira’s patent was set to expire in 2016. This would allow generic alternatives to Humira to enter the marketplace, putting a huge dent in the company’s profits.
But fear not, for AbbVie had a trick up its sleeve: many, many lawyers. Over 200 additional patents were filed for Humira even after the drug had already been approved, preemptive lawsuits were filed against potential competitors, and AbbVie was spun out from Abbott Laboratories as a separate company. Financially speaking, this slimy strategy was an unqualified success, and AbbVie’s right to monopolize Humira was (legally) extended for another seven years.
To celebrate, AbbVie raised the price of Humira another fourteen times. By 2022, it cost $5,243 per dose, representing a 512% increase since 2013 and leaving inflation in the dust. All told, Humira sales brought in $208 billion from 2003 – 2022. With a $272 billion market capitalization, AbbVie is now worth much more than its former parent company Abbott. For that matter, it is also worth more than Disney, Coca-Cola, Toyota, Nike, or Bank of America. 35% of this market capitalization comes from Humira alone.
In January of 2023, the party finally ended. AbbVie’s Humira patent was allowed to expire, and patients will soon be able to access nearly identical alternatives from other manufacturers. However, it’s likely that these patients and the employers that provide them with health insurance will still be getting fleeced: Amjevita, the first Humira alternative to hit the market, will be offered as either a high-price, high-rebate medicine, or a low-price, low-rebate medicine.
The expectation is that most pharmacy benefit managers will embrace the former version. This means bigger rebates for Amgen, the manufacturer, and larger out-of-pocket costs for Americans with high-deductible health plans.
Fighting High Pharma Costs
The story of Humira may be especially egregious, but it isn’t unusual. For better or worse (it’s worse), the pharma juggernaut will continue to extract as much value from patients and health plan sponsors as it possibly can. Gene therapies are one of the next great frontiers for extraordinarily high prices, with hemophilia products like Roctavian and Hemegenix expected to retail at millions of dollars per dose.
Other classes of medications with hefty price tags include antineoplastics, which are used for chemotherapy, TNF inhibitors, which are used for similar conditions as Humira, cardiovascular drugs like anticoagulants, and the sedatives, hypnotics, and tranquilizers that are used to treat central nervous system conditions.
As long as the fundamentals of the American healthcare system remain constant, pharma prices will continue to balloon. Drug manufacturers, pharmacy benefit managers, and insurance carriers will continue to win, while patients, plan sponsors, and taxpayers will continue to lose.
However, there are some things that forward-thinking employers can do to blunt the pain. Transitioning to an unbundled self-funded health plan with an independent pharmacy benefits manager can enable employers to audit plan costs and spending, encourage the use of generic and biosimilar alternatives to expensive medications, and request the exclusion of expensive nonessential medications from formularies. Such plans involve a greater amount of administrative burden and financial risk than a fully-funded plan, but also carry the potential for great rewards in the form of large savings and greater plan control.
Unconventional solutions such as medical tourism, where employers sponsor travel to countries with lower health costs, may also be a good fit for some employers. In addition to this, sponsors of fully-funded plans should be vigilant about keeping their carriers honest.
In states where carriers are not required to disclose claims data, they may be able to pocket rebates on expensive specialty medications without giving underwriting credit for these at renewal. It never hurts to request this information before signing up for another year of exorbitant premiums.
The Brutal Reality
Ultimately, it will be difficult for patients and employees to weather the storms of a rigged system. Implementing intelligent cost containment strategies may enable some plan sponsors to escape the worst excesses of big pharma, but the truth is that employers are trapped in a no-win situation.
People need medicine, full-time employees expect coverage from their employer as a fundamental condition of employment, and the country’s unprecedented labor shortage means that providing competitive benefits is essential for any organization that does not want to spark an employee exodus. Until the basic structure of the American healthcare system is changed, employers are stuck in a no-win situation where the best outcome they can hope for is finding ways to mitigate their exploitation.
For more analysis of pharmaceutical news, check out this blog post: What Amazon’s Subscription Drug Service Means for the Pharma Affordability Crisis.