“The large, across-the-board price increases of popular, brand name prescription drugs appear to be an example of pharmaceutical companies taking advantage of their abusive market power to expand already-large profits.”
WASHINGTON — U.S. Senator Amy Klobuchar (D-MN) and a group of 12 bicameral colleagues are calling out the CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), asking him in a letter to explain why brand drug manufacturers decided to hike prices in January on their already most profitable brand medications. The letter follows two new analyses, including one published by Steve Schondelmeyer of the University of Minnesota PRIME Institute, that reveal troubling, widespread, and rapid price increases for brand name drugs in January 2022.
“The large, across-the-board price increases of popular, brand name prescription drugs appear to be an example of pharmaceutical companies taking advantage of their abusive market power to expand already-large profits. And the coordinated and timely price increases ring of political opportunism,” the lawmakers wrote.
The average price increase of more than 5% for all brand name drugs in January 2022 was almost twice as high as overall inflation for medical care services for all of 2021, and the average price increase of nearly 4% for the 20 top-selling Medicare Part D drugs was almost 1.5 times as high. These price hikes affect the vast majority of popular brand name drugs and hurt consumers dealing with record high prices throughout the economy. The price increases hit older Americans and people with disabilities in the Medicare program hard. The price increases for the top 20 Medicare Part D drugs, if also reflected in total expenditures, would increase costs for consumers and taxpayers by an estimated $2.5 billion. The lawmakers are calling out drug manufacturers for further driving up inflation by abusing their market power and price-gouging American families.
One of the analyses by Steve Schondelmeyer of the University of Minnesota PRIME Institute found that drug manufacturers increased prices for 72% of all formulations of the 100 top-selling drugs in January 2022, with a 5.1% average price increase for brand name drug products. A separate analysis provided by Johns Hopkins University researchers revealed that manufacturers increased prices for 16 of the top-selling 20 Medicare Part D drugs in January 2022, by an average of 3.9%. Some drug prices skyrocketed. For example, manufacturers increased the price of Humira, used to treat autoimmune diseases, by 7.4%. The price of a three-month supply of the cancer drug Revlimid increased by nearly $3,600 in January, and the cost of the breast cancer drug Ibrance increased by over $900.
“These evaluations suggest rapid price hikes affecting the vast majority of popular brand name drugs, including those used by seniors and people with disabilities in the Medicare program. These analyses reveal that drug manufacturers are using their market power to impose extraordinary price increases, which also have the effect of driving up general inflation,” the lawmakers wrote. “This behavior by drug manufacturers – which will drive up their already-exorbitant profits at the expense of middle-class families in need of medical care – demands an explanation.”
In addition to Klobuchar and Warren, the letter was signed by Senators Tina Smith (D-MN), Tammy Baldwin (D-WI), Maggie Hassan (D-NH), Bernie Sanders (I-VT), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR), in addition to Representatives Jan Schakowsky (D-IL), Katie Porter (D-CA), Peter DeFazio (D-OR), Peter Welch (D-VT), and Susan Wild (D-PA).
The lawmakers have requested a response no later than March 8, 2022.
Klobuchar has long been a leader in the fight to lower prescription drug costs for Minnesota families and seniors. Last month, Klobuchar introduced the Cutting Medicare Prescription Drug Prices in Half Act, which would allow Medicare to pay the same prices for prescription drugs as the Veterans’ Administration (VA). The prices the VA pays for prescription drugs are roughly half the amount of prices paid by Medicare Part D for the same products. In his State of the Union address last night, President Biden urged Congress to send the bill to his desk.
The full text of the letter is available HERE and below:
We are writing regarding findings from two new analyses of troubling price increases for brand name drugs in January 2022. These evaluations suggest rapid price hikes affecting the vast majority of popular brand name drugs, particularly those used by seniors and people with disabilities in the Medicare program. These analyses reveal that drug manufacturers are using their market power to impose extraordinary price increases, which also have the effect of driving up general inflation. Congress and the public deserve an explanation for how manufacturers have made these seemingly inexplicable pricing decisions.
The first analysis, conducted by Dr. Stephen Schondelmeyer of the University of Minnesota’s PRIME Institute, found that:
- Manufacturers increased prices for 72% of all formulations of the 100 top selling drugs in the first 25 days of 2022.
- Overall, brand name drug products accounted for a disproportionate share of these price increases compared to generic drugs – 26% of all brand name drugs had price increases, compared to less than 3% of generic drugs.
- In just the first 25 days of January 2022, brand name drug products had a mean price increase of 5.1%, higher than the average 4.6% increase for brand name drugs in January 2021. And, because it is not unusual for drug products to have at least two price increases in a given year, the price increase for these brand name drugs will likely “substantially exceed” this amount on an annualized basis.
- For 118 brand name drugs, manufacturers made “extraordinary” price increases of 10% or greater, with the highest increase at over 60%.
- Generic drugs – which are less expensive to begin with, and typically subject to strong market competition – were less likely to have price increases, and had smaller price increases.
The second analysis, provided at the request of my staff by the Johns Hopkins Drug Access and Affordability Initiative, reviewed price increases in January 2022 for the 20 drugs with the highest expenditures under the Medicare Part D program. Specifically, the researchers provided my staff with Wholesale Acquisition Costs – list prices – for each of these drugs at the end of January 2022 and compared those to list prices for the same drugs one month earlier.
These list prices – like the Average Wholesale Prices provided by Dr. Schondelmeyer – do not reflect discounts and rebates that some purchasers are able to obtain for these drugs. But as PhRMA has previously found, “commercially-insured patients pay undiscounted list prices for one in five brand prescriptions, accounting for half of out-of-pocket spending on brand medicines.” An increase in baseline prices, even if they are partially offset by rebates, will still result in an increase in net costs for providers, taxpayers, and consumers, who often pay cost sharing based on list prices.
This up-to-date pricing data shows that in January 2022, manufacturers increased prices for 16 of the top 20 Medicare Part D drugs (see Table 1). For nearly half of these drugs, manufacturers raised the price by 5% or more. Manufacturers increased the price of Humira, used to treat autoimmune diseases, from $8,952 per month to $9,615 – an increase of 7.4%. The cost of a three-month supply of the cancer drug Revlimid also increased by nearly $3,600 in January. This 3.9% average increase in list prices for the top 20 Medicare Part D drugs – if it is also reflected in total expenditures – would result in an estimated $2.5 billion in increased costs for seniors and taxpayers this year even if manufacturers did not impose any further price increases.This estimate was made using the total 2020 dollar sales for each of the top 20 drugs, multiplied by the percentage price increase for each of these drugs. For example, Xarelto had $4.7 billion worth of sales to Medicare in 2020, and increased in price by 4.9%. For a full year, the extra cost of Xarelto would therefore be ($4.7 billion X 4.9%), or approximately $230 million.
These price increases are deeply troubling, especially when considering that many of these products have been on the market for several years (and sometimes decades) and have exceeded their patent life and market exclusivity period. Many of these companies also enjoyed massive profits in 2021. Yet in January alone, the average price increase of nearly 4% for these popular Medicare drugs was higher than overall inflation for medical care services for the entire year of 2021, which was only 2.7%. PhRMA claims that high research expenditures are the main component of drug development costs. But research dollars are fixed, sunk costs (rather than manufacturing and distribution costs that vary), so the price increases for these popular drugs cannot easily be explained by supply chain concerns.
The large, across-the-board price increases of popular, brand name prescription drugs appear to be an example of pharmaceutical companies taking advantage of their abusive market power to expand already-large profits. And the coordinated and timely price increases ring of political opportunism.
This behavior by drug manufacturers – which will drive up their already-exorbitant profits at the expense of middle-class families in need of medical care – demands an explanation. We therefore ask that you provide answers to the following questions no later than Tuesday, March 8, 2022:
- Why did manufacturers increase prices for virtually all top-selling brand name prescription drugs in January 2022? By how much did these price increases increase total manufacturer profits?
- What were the research costs associated with the development of the top-selling drugs in Medicare in January 2022? What are the cumulative gross revenues for each of these drugs since they came to market?
- By how much did manufacturing and distribution costs increase between January 2021 and January 2022, and how did these increases compare to price increases on popular brand name drugs over the same period? Which brand name manufacturers and which drugs faced the greatest increases in such costs, and why?
- Is there any reason other than difference in the level of competition for brand name drugs versus generic drugs to explain the large price increases for popular brand name drugs in January 2022 and relatively limited price increases for generic drugs?
- Why did virtually every manufacturer of popular prescription drugs increase their prices, on average, more in January 2022 than in previous years?
a. Are you aware of PhRMA or any other person or entity advising drug manufacturers to delay price increases in 2021, holding them until 2022?
b. Are you aware of any other coordinated behavior by brand name drug manufacturers to increase prices?