Big pharma's pricing a significant factor in driving up current healthcare spending

There's currently a schism between healthcare prices and healthcare spending.

Prices are budging only grudgingly. That's likely the confluence of the Great Recession, the Affordable Care Act and the ever-rising out-of-pocket costs for consumers, which has prompted some to put the brakes on utilization.

However, healthcare spending paints a different picture. It rose by 5 percent last year, according to the Altarum Institute's Center for Sustainable Health Spending. That's significantly higher than in 2013, and it edged closer to a 6 percent annual spending rate increase in December. That compares to a 1.8 percent overall rise in pricing in 2014, including the lowest rise in hospital prices in nearly two decades.

For the paltry rise in prices and the more robust rise in spending, there is a common driver: The pharmaceutical sector. Altarum noted that spending on prescription drugs rose 13 percent between December 2013 and December 2014. Pricing for prescription drugs rose 6.4 percent during that same time period.

Not a single other face of healthcare delivery comes close to matching those numbers. That means without the pharmaceutical influence, healthcare costs and spending would be barely moving--a remarkable development in light of the rampant healthcare inflation of less than a decade ago. "Breaking Bad" aside, the development of pharmaceuticals in the U.S. has generally been upbeat. Patients at risk for heart attacks can can take low-cost statins and see their cholesterol levels plummet virtually overnight. There are drugs to treat depression, impotence, chronic pain and even toenail fungus that no one could have dreamed of 30 years ago.

But the marketing of those drugs has become at times questionable. John Oliver's take on his HBO show last week was spot-on, poking fun at the young, sexy (and undereducated) pharma sales reps, the free meals and "thought-leader" designations for doctors, and the anthropomorphized bladders and other visual insanity in television commercials (Oliver was also kind enough to cite our sister site, FiercePharma). As a matter of fact, drug companies now spend more on marketing than product development. He didn't even get into some of their even more troubling practices, such as lobbying Congress to bar Medicare from negotiating on pharmaceutical prices in bulk or buying them overseas, where the predominance of single-payer healthcare systems has forced drug companies to price their products at much lower prices.

The Financial Times recently suggested that Gilead may have overreached by pricing its hepatitis drug regimen Harvoni at close to $100,000 per person. Certainly, that's far cheaper than a liver transplant, but the British newspaper suggested that was the kind of pricetag usually reserved for orphan drugs. As a result, some commercial insurers and state Medicaid program have negotiated with Gilead to cut its prices.

Big deal. Gilead's average discount for Harvoni is about 46 percent, according to the Wall Street Journal. That means it's still charging around $700 a pill for the drug, an absolutely grotesque markup. Multiply that by the 3.2 million Americans believed to have hepatitis C, and you're looking at a potential pricetag of $1.6 trillion to eliminate the disease in the U.S.

Meanwhile, Gilead has become extraordinarily aggressive in fending off competition from AbbVie's new hepatitis C medication, locking up more than 80 percent of the market. Don't expect those discounts to last forever, because with that kind of market share, Gilead won't need to extend them.

Hospitals, medical practices, clinics and other feet-on-the-ground providers have gotten the message that continuing to ratchet up prices and spending would damage the American healthcare system. Drug markers have yet to receive that message. If they don't soon, the upward death spiral of costs may resume unabated. - Ron(@FierceHealth)

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