CBO report highlights rising cost of brand-name drugs in Medicare as Congress considers price negotiations

4 min
January 25, 2022

By Nicole DeFeudis

January 25, 2022

As the Democrats’ big shot at major drug pricing reform hangs in the balance, the Congressional Budget Office has released a new report showing the average net price of brand-name prescription drugs in Medicare Part D more than doubled from 2009 to 2018.

Overall, the average net price of a prescription — the cost after discounts and rebates given to private insurers and federal programs — fell from $57 in 2009 to $50 in 2018 in the Medicare Part D program and from $63 to $48 in the Medicaid program, according to the CBO’s latest prescription drug spending, use and pricing report. That partially reflects the increased use and falling average price of generic drugs.

However, the average net price of brand-name drugs skyrocketed in that time frame, rising from $149 to $353 in Medicare Part D and from $147 to $218 in Medicaid.

Senate Finance Committee Chair Ron Wyden (D-OR) said in a statement that the report “drives home the urgent need” for change.

It comes as Senate Democrats look to forge a bill that would allow Medicare to negotiate prices for some of the most expensive drugs, force drugmakers to pay rebates if their prices rise faster than inflation, cap the cost of insulin, and create an out-of-pocket spending cap for seniors, among other provisions.

But without support from Sen. Joe Manchin — who derailed Dems’ efforts to pass the same provisions as part of the Build Back Better Act just before Christmas — or any Republicans, that legislation remains unlikely to pass.

“It’s time to give Medicare the tools to fight back against high prices,” Wyden said in response to the CBO’s recent report. From 2010 to 2017, net prices for brand-name drugs rose by an average of 6.3% faster than inflation per year, according to his office.

Sean Dickson, director at the West Health Policy Center in Washington, DC, credits increases in spending to higher launch prices and longer protections from generic competition.

“We’re seeing a lot more aggressive defense of these monopoly drugs, as brand manufacturers have focused on eking out as much money as they can from existing products,” he said.

Nationwide spending on prescription drugs has seen a relatively steady increase over the last few decades, with a few exceptions. It saw a considerable uptick after 1995 as a number of drugs reached blockbuster status, including statins for high cholesterol, ACE inhibitors for high blood pressure, proton-pump inhibitors for acid reflux and gastric ulcers, and antidepressants and antipsychotics for mental illnesses.

When those patents expired, lower-priced generics were introduced, around the same time that the Medicare Part D program was created in 2006. As a result, per capita spending on prescription drugs leveled off at about $940 in the mid-2000s and fell to $900 by 2013 (all estimates of drug spending and prices in the report are expressed in 2018 dollars). There was another uptick between 2013 and 2015, which coincided with the introduction of expensive hepatitis C drugs.

Overall, nationwide spending on prescription drugs increased from $30 billion in 1980 to $335 billion in 2018 (expressed in 2018 dollars), the CBO said. Over that period, real per-capita spending on prescription drugs increased more than sevenfold, from $140 to $1,073. Spending on prescription drugs grew from $74 billion in 2009 to $120 billion in 2018 in the Medicare Part D program and from $18 billion to $32 billion in Medicaid.

In recent years, Dickson said drugs have taken price increases above the rate of inflation and may rebate some of those increases back to insurance companies through pharmacy benefit managers.

“But when they launch a new drug, they launch it at the high, overly inflated price of a higher drug in that sort of sector, and don’t offer those same rebates that offset the price increases,” he said. “And so we have this growth, where artificial price increases on existing products drive higher launch prices for new products”

Manchin told reporters earlier this week that he’s willing to talk to Democrats on the BBBA, though he’ll be “starting from scratch,” per an NBC News report. Another recent report from the CBO — outlining how Medicare negotiations could take a bite out of the amount of new drugs that make it to market — isn’t helping Dems’ case.

According to a new slide deck released by the CBO last week, an updated model suggests a 10% long-term reduction in the number of new drugs, whereas a previous CBO report from August estimated that 8% fewer new drugs will enter the market over 30 years. The new model suggests we could see 40 fewer new drugs in the third decade, compared to the 34 fewer predicted by the old model.

“What I think is really important to understand about the CBO report is their modeling shows that these drugs, whether it’s 8% or 10%, are drugs that were going to be marginally profitable to even start with,” Dickson said.

Hypothetically, Dickson says the drugs that wouldn’t make it to market would likely be the ones so close to that threshold of profitability — the “me too” drugs that are hopping on the bandwagon, and not adding anything “therapeutically valuable,” he said.

“It’s not, you know, a random pick, we’re gonna pick 10% of all the drugs that were going to come to market and remove those,” he said. “The companies are only going to take the ones that were marginally eligible to come to market to start with in terms of profitability, and those are not likely to be drugs that have a huge health benefit or help a lot of people.”

PhRMA blasted the BBB bill’s passage in the House back in November, saying it will “throw sand in the gears of medical progress.”

The version that passed the House is expected to save the government (and cost industry) about $76 billion over 10 years, and about $85 billion in inflation rebate penalties if drug prices rise above certain levels. That’s a far cry from House Speaker Nancy Pelosi’s former drug price negotiations bill, known as HR3, which the CBO scored in August as $456 billion in savings over 10 years.

The Medicare negotiations deal also includes extensive limitations, and it’s unclear what kind of dent, if any, the deal will make on drug prices over the longer term, or for those outside of Medicare.

“More importantly, it would set new precedents for the market, and in particular, I’m talking about the combination of those negotiation provisions with the inflation penalties that are part of them,” Dickson said.


Sean Dickson
Director, Health Policy