PhRMA Statement on AARP Prescription Drug Report

PhRMA Statement on AARP Prescription Drug Report
Washington, D.C. (November 16, 2009) - Pharmaceutical Research and Manufacturers of America (PhRMA) Senior Vice President Ken Johnson issued the following statement today:   

"In AARP's skewed view of the world, medicines are always looked at as a cost and never seen as a savings - even though medicines often reduce unnecessary hospitalizations, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases.

"Most troubling, AARP's conclusions are based on incomplete information because they do not take into account discounts and rebates generally negotiated between drug manufacturers and payers, which can significantly lower the cost of brand drugs to payers, ultimately benefiting patients.

"In the same way that most Americans do not pay the full sticker price for a new car, most seniors benefit from steep discounts and rebates on medicines provided by drug manufacturers through private negotiations. Medicare Part D is a good example. The Medicare Trustees report that rebates in the Medicare prescription drug program reach 20%-30% for many brand-name drugs.

"In trying to leverage its position in the health care reform debate, AARP also fails to acknowledge how key elements of legislation pending before Congress will benefit patients moving forward. These include a large increase in the base formula for the rebates that brand manufacturers pay in Medicaid, which will help fund health reform, and the fact that Medicaid eligibility could be expanded to tens of millions of Americans who then would have access to health care coverage that includes lower-priced medicines.

"What's more, AARP fails to mention the 50% discount that companies will provide to most seniors and disabled Americans who hit the so-called ‘donut hole' in Medicare Part D. That provision alone is expected to save beneficiaries with spending in the coverage gap as much as $1,800 in 2011.

"AARP also ignores the historic slowdown in prescription drug spending, illustrated by the latest forecasts from IMS Health and the most recent government data. Here are the real facts:


  • Prescription drug spending growth fell to 1.3 percent in 2008, according to IMS Health, and is projected to remain ‘at historically low levels' in 2009. The latest available data from the Centers for Medicare and Medicaid Services (CMS) also show that prescription drug spending in 2007 grew at the lowest rate in 45 years.
  • The Congressional Budget Office has reported that ‘from 2004 to 2007, drug expenditures grew by an average of just 3.2 percent per year, slightly less than the rate of growth in overall health care spending.'
  • Prescription drug prices are also rising more slowly than overall medical inflation, according to the government's Consumer Price Index, which includes a blend of brand and generic drugs that reflects what consumers actually buy. It shows that prices for prescription medicines grew just 2% in the 12 months ending August 2009, compared to 3% for overall medical care.

•CMS reports that prescription drug spending is a small share of total health care cost growth, accounting for just 8 percent of cost growth in 2007, compared to 18 percent in 2002; other health services such as hospitals, doctors, nursing homes and administrative costs accounted for the other 92 percent.


"Discovering and developing new medicines is an inherently risky and expensive business. Companies spend, on average, 10 to 15 years and $1.2 billion researching and developing just one innovative medicine. And for biologics, which represent the future of medicine, companies devote an additional $250 million-$450 million to building specialized R&D facilities.

"Most importantly, despite their small share of health costs - relative to other health services - medicines are yielding major health advances. For instance, prescription medicines have played a key role in the dramatic declines in death rates resulting from cancer, heart disease and HIV/AIDS in recent years. Clearly, innovation is the driving force behind medical progress.

"Medicines also can help slow the growth rate of health costs. Recent research has estimated that delaying the onset or slowing the progression of Alzheimer's disease by five years could save $100 billion per year by 2020 in Medicare and Medicaid costs. In addition, a recent study in the Journal of the American Medical Association found that effective treatment of diabetes with medicines and other therapy yields annual health care savings of $685 to $950 per patient within one to two years.

"Today, treatment of patients with chronic conditions accounts for nearly 75 percent of all health care spending. Reducing the need for health care services because fewer Americans have costly conditions like diabetes and heart disease will pay both human and economic dividends.

"These two complementary goals - improving the health of patients in America and reducing the growth of overall health care costs - are at the core of ongoing efforts to reform our nation's health care system.

"As Congress and the Administration continue to work towards comprehensive health care reform, we remain committed to helping ensure that all Americans have access to high-quality, affordable healthcare coverage and services. We will continue to be a constructive partner to help pass a comprehensive health care reform bill that can get to the President's desk this year."