Pharmaceutical companies insist that outrageous prices drive the development of innovative medicines. And industry groups claim that Medicare pricing reform and the Inflation Reduction Act of 2022 will send innovation “light years back into the dark ages of biomedical research.” Don’t believe them.
The Foundation for Research on Equal Opportunity (FREOPP) investigated these claims and determined that the world’s largest pharmaceutical companies with the most expensive drugs are extremely inefficient in turning research and development spending into new FDA-approved medicines. Researchers described their labs as “lumbering” with only 20% of the efficiency of the overall industry and were not at all surprised that they “are less innovative than their smaller brethren.”
Most new medicines—including those that are true cures vs. those that provide only modest clinical benefits—are developed at small companies. As FREOPP president, Avik Roy, and resident fellow, Gregg Girvan, wrote in The Washington Post:
“Had the largest companies held net prices constant on a single large drug in each of their portfolios from 2012 to 2021, Americans would have spent $139 billion less on prescription drugs. Because big companies deployed about 18 percent of their revenue on R&D, that $139 billion in savings translates to approximately $25 billion in reduced R&D spending by the majors.
“But according to our analysis, that $25 billion in R&D spending accounts for only five drugs developed in these giants’ own labs. That’s 1.2 percent of the 430 drugs approved by the Food and Drug Administration in that period.”
Advancing Cost-Effective Rx Innovation
Profit growth at the largest pharmaceutical companies, which is typically driven by price hikes on older, branded, monopoly drugs, rarely leads to the development of innovative new medicines. When crafting legislation, legislators need to look beyond the industry’s resistance to cost containment and recognize that it is possible to secure significant savings with minimal impact on new drug development.
Prescription drug prices in the United States are among the highest in the world, putting many cutting-edge therapies and specialty medications out of reach for millions of Americans. Employers can follow the findings of the FREOPP researchers by recognizing that most innovation comes from smaller, less entrenched companies such as Vitori Health.
Employers can save 40% over traditional PBMs with a member-first, state of the science pharmacy program. Look for plans that include acquisition cost controls, agile drug sourcing, and financial assistance for covered members at no charge. Likewise, a formulary based on clinical effectiveness and comparative research ensures better medical and financial outcomes.
The Inflation Reduction Act of 2022 and Medicare pricing reform are among the first legislative steps toward delivering incrementally affordable medicines. In the meantime, employers can choose a modern pharmacy program that reaps immediate and significant savings.