Pharmaceutical companies’ power to raise prices is firmly intact despite pushback from health insurers, scrutiny by U.S. lawmakers and anxiety about rising prescription drug spending.
More than two-thirds of the 20 largestpharmaceutical companies said price increases boosted sales of some or most of their biggest products in the first quarter, according to a Wall Street Journal review of corporate filings and conference-call transcripts.
Shares of many drugmakers have slumped this year, partly because of investors’ concerns that Congress could implement new price controls, or that public scrutiny would cause companies to voluntarily ease price increases. So far, however, Congress has shown little willingness to address the issue, and many drugmakers have continued to raise prices.
The upshot is that in a period of low inflation and sluggish economic growth, drugmakers’ power to raise prices still exceeds most other industries. And though it’s long been common for companies to gradually raise prices on drugs after launching them, the magnitude and frequency of the increases have grown in recent years.
Prices received by manufacturers of U.S.-made pharmaceuticals rose 9.8% from May 2015 through May 2016, the second-highest increase among the 20 largest products and services tracked by the Bureau of Labor Statistics’ Producer Price Index. Investment services ranked first.
“You can’t take the price of the iPhone…up 10% a year,” said Geoffrey Porges, a Leerink Partners LLC biotech analyst.
A fragmented U.S. health-care market, combined with a complex system of drug discounts and rebates, makes it difficult to accurately track U.S. drug prices. But companies often describe in regulatory filings the factors behind product sales growth or declines, including the impact of net pricing, after all the rebates and discounts they give insurers and pharmacy-benefit managers are taken into account.
Drugmakers often tout these discounts off their list prices as evidence of a competitive marketplace where powerful health insurers check their pricing power. But drug companies’ financial disclosures show that net prices in many cases continue to rise, and boost revenue, despite these discounts.
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