- The share of healthcare dollars spent on prescription drugs has nearly doubled since the 1990s, according to a new report from the Government Accountability Office.
- In 2015, about 12% of personal healthcare service spending went toward prescription medicines sold at retail pharmacies, up from 7% in the decade of dot-coms and Nirvana. Pharmaceutical sales revenue also grew between the two time frames, going from $534 billion to $775 billion (in 2015 dollars).
- The report found costly brand-name drugs were a main culprit for those increases, though price hikes on some generics played a role as well. Such conclusions are in line with other recent studies, which have determined that expensive specialty medications are ratcheting up U.S. drug spend.
More key findings from the report pertained to profit margins and dealmaking.
From 2006 to 2015, annual average profit margins (AAPMs) increased for two-thirds of all pharmaceutical developers. Even more noteworthy is that big pharma fetched much better returns than large-sized companies in other industries. AAPMs for the 25 largest drugmakers landed in the 15% to 20% range during the period, while they clocked in at 4% to 9% for the non-drugmakers that were among the world's 500 largest organizations.
In conducting its report, the GAO interviewed economists, advocacy groups and industry experts from trade organizations and federal agencies. From those interviews, the GAO gathered that market pressures like rising R&D costs and competition from generic drugs were driving up M&A activity, which in turn crimped innovation.
"As noted, brand-name drug companies compete to develop new products and differentiate their products from therapeutic alternatives," the report explained. "The analysis of how competition affects innovation is a fact specific process. There is empirical evidence suggesting that, in certain circumstances the incentive to invest in R&D could be enhanced with more competitors."
"Research GAO reviewed indicates that fewer competitors in the drug industry are associated with higher prices, particularly for generic drugs," the report also said. "Research also suggests that drug company mergers can have varied impacts on innovation as measured by R&D spending, patent approvals, and drug approvals. Certain merger retrospective studies have found a negative impact on innovation."
The 78-page report came at the request of Rep. Elijah Cummings, D-MD, and Sen. Bernie Sanders, I-VT, lawmakers who have made concerted efforts to shed light on the pharmaceutical industry's opaque pricing practices.
Over the past year or so, Sanders and Cummings have sought information on the various cogs within the drug pricing machine. In some cases, the information was focused on a particular therapeutic area, such as last November when the pair called on the Department of Justice and the Federal Trade Commission to looking into potential price collusion among the three big diabetes drugmakers: Sanofi SA, Eli Lilly & Co.
Cummings and Rep. Peter Welch, D-VT, both members of the House Committee on Oversight and Government Reform, launched another investigation in August centered around the pricing strategies seven companies used for their multiple sclerosis drugs.