Discussion: Drugmakers’ Pricing Power Remains Strong | WSJ

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 largest​pharmaceutical 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.

Top Comments

George Simpson
The problem is that the US has a problem with saying NO to any treatment. And fear of lawyers has caused unnecessary testing that adds to costs. As long as the insurance companies and Medicare pays ridiculous prices, health care providers, medical equipment mfgs., and drug makers will continue to raise prices. And raise prices.
And our citizens get to subsidize the rest of the world in the meantime because they will not pay the higher prices.
Daniel Leung
As an investor, I love the American way of democracy and how we preach to the world our way of life when our political process is to force our sick and old to subsidy the investors of the foreign, soon-to-be foreign, and formerly domestic drug companies. 
Our political process vs. others (India, Canada, Japan…) is prohibiting our Medicare and Medicaid to negotiate or regulate drug prices based on what these companies are charging in other countries.  Our Government is unable to stop the tax inversions or to eliminate IR&D tax credits that benefits foreign citizens when the drug companies are gouging our citizens, bankrupting our federal and local governments.
The result is that we are paying 20+% of GDP on medical costs and have a subpar health index.
We are unable to learn from other democracies to break  the duopoly of the same self-serving political machines. Do we think that Trump, Clinton or the Congress would do anything to stop the gravy train provided by the drug companies?
ALLEN NOGEE
@JAMES VUGTEVEEN Nice thought, but since prescribers don’t have to pay for the drugs, there is certainly no motivation for them to know the prices. Plus there are literately 1000’s of drugs each whose price changes daily.  I think doctors do try to prescribe generics when they can, but if a generic isn’t available, do you really think doctors have the time to research effectiveness vs. cost for all drugs? Honestly, and I’m not a doctor, but that is asking a lot.
Also as other say, many prescription, like the EpiPen have few other choices. Its either buy it or die.

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Drugmakers’ Pricing Power Remains Strong – WSJ.