The consumer price index for prescription drugs has fallen 2.3 percent from its peak in June 2018 through September 2019, according to an analysis of data by the Bureau of Labor Statistics (BLS) by President Donald Trump’s Council of Economic Advisers (CEA). This price drop has been the fastest since the 1960s, aided by the quicker approvals of new and generic drugs by the Trump administration, according to the CEA.
Great news for American patients! Prescription drug prices FELL again last month and are now 2.3% below their peak. Increased generic drug approvals under @realDonaldTrump continue driving price reductions. Read our recent report on falling prices: https://t.co/9fUT3MhB2J pic.twitter.com/FYBqqH4Vmi
— CEA (@WhiteHouseCEA) October 10, 2019
The decline breaks a trend of price increases that have since 1970 only paused once, briefly, in 2013. Drug price hikes have been a major part of the growing healthcare costs for Americans, cutting into family budgets and fueling government debt.
Average annual new drug approvals increased by nearly 72 percent in 2017 and 2018, compared to the period 2008–2016, the CEA said in an Oct. 10 paper (pdf). Average annual generic drug approvals, meanwhile, increased by almost 70 percent.
“The rate of drug approvals increased in 2017 and 2018, due in part to policies of the Trump Administration to expedite the drug approval process,” the paper stated.
If the 2017-2018 rate of drug approvals continues, it will save consumers between about $79 billion and $109 billion by 2027, the CEA estimated, when compared to an estimate using the 2008–2016 approval rate.
The estimated benefits were even higher when CEA counted in the value of having more new, presumably better drugs in the market.
Measuring Drug Prices
Gauging drug price movements can be complicated. The CEA paper criticized some media for using measurements that “can be misleading.”
Several media reported this year that prescription drug prices have been increasing in the first half of 2019 at a rate four or five times the inflation.
The reports said that 3,400 drugs have increased prices in 2019, with an average price increase of 10.5 percent, citing a study by Rx Savings Solutions, a consultancy promising savings on drug purchases.
So how come the BLS reported a price drop?
First, 3,400 drugs are only a fraction of the drug market and thus may not be representative of the overall market conditions.
Second, the number is inflated because it counted different dosages and strengths of the same drug as separate products, according to the CEA.
Third, the measure is by design incapable of capturing any price drops, since it only looks at drugs that have increased in price compared to the year before.
The Rx Savings analysis showed that fewer drugs, 2,900, increased in price in the same period in 2018.
In addition, an analysis by the Associated Press showed that in the first seven months of 2018 there were 96 drug price increases for every price drop.
But looking just at the number of drugs with price hikes and price declines doesn’t quite capture the reality faced by an average consumer, the CEA pointed out.
For example, a price hike on a drug used by 50,000 people would have less impact than the same hike on a drug used by 500,000.
In addition, both Rx Savings and AP looked at list prices, which is not what a typical consumer actually pays either out of pocket or through insurance. Insurance companies use so-called “pharmacy benefit managers” (PBM) who negotiate better prices for them.
The BLS index, called CPI-Rx, accounts for all of these factors and more and is thus the most appropriate measure of drug price changes, CEA concluded.
The BLS index is not perfect either, though. It’s based on a random sample of recently prescribed drugs at a national sample of pharmacies. It’s thus prone to sampling errors.
“Drugs for relatively rare conditions are unlikely to be included in the sample,” CEA noted.
Also, The BLS index only looks at retail drug prescriptions, so drugs administered by hospitals or doctors are not included.
A 2018 study showed that compared to data from prescription drug insurance claims, the BLS index showed a somewhat lower rate of price increases, though the authors couldn’t explain why (pdf).
From The Epoch Times