The pharmaceutical industry remains incredibly profitable. Although the final numbers are not yet in, it appears that Pharma companies like Merck, Pfizer, Lilly, Johnson & Johnson, AbbVie and Novo Nordisk have all had a banner year in 2023. Despite impressive revenue growth, the start of a new year is almost always an excuse for drug companies to raise drug prices. 2024 appears to be no exception.
An early report has tallied up more than 500 prescription medicines that are expected to cost more in coming weeks. If 2024 is anything like past years, companies will also raise drug prices on lots of other medications in coming weeks.
How Much Will Companies Raise Drug Prices?
It is almost impossible to predict what will happen to your particular medicine in 2024. That’s because drug pricing is a mysterious and opaque process.
If you have health insurance, there is a good possibility you will face a fairly steep co-pay cost until your deductible is met. We explain why paying cash for your prescription may actually save you money at this link.
There is the so-called list price, which may bear very little relationship to the actual price that you or your insurance company pays. That’s because there is a lot of financial wheeling and dealing when it comes to pharmaceuticals.
Actual Prices for Cars and Drugs Are Confusing!
Everyone understands the difference between the list price and the actual price. An automobile manufacturer may put a “sticker” price on the window of a new car at $35,000. When you get done negotiating with the dealer, however, you may end up paying $32,000.
But what is the “real” price of that new car you want? The “dealer invoice price” is the amount your local car company theoretically pays the manufacturer for the car. But wait, it gets confusing very quickly. That’s because manufacturers offer “rebates” or “holdbacks” to car dealers.
In other words, the dealer gets back a percentage of the invoice price or the MSRP (manufacturer’s suggested retail price). The same sort of thing happens in the world of pharmaceuticals.
The so-called pharmaceutical list price or “Average Wholesale Price (AWP)” is quite different from the “net” price because the manufacturers offer pharmacy benefit managers (PBMs) rebates. There are other players in this game as well, such as insurance companies, Medicare and Medicaid.
The Bipartisan Policy Center described the relationship between drug manufacturers and PBMs this way:
“This nontransparent price discount between manufacturers and PBMs creates confusion for those who aren’t involved in the negotiating process when attempting to understand pharmaceutical pricing dynamics, as discounts may or may not change with changes in list prices.”
How Much Will Companies Raise Drug Prices in 2024
There is good news and bad news in this regard.
According to FIERCE Pharma (Jan. 2, 2024):
“Once again, Pfizer stood out among its peers for January price hikes, with its increases accounting for more than a quarter of all medicines included in this round, Reuters pointed out. Specifically, Pfizer is bumping up the prices on 124 doses or formulations, plus another 22 from is sterile injectables arm Hospira.”
“Last year, drugmakers raised the prices of 1,425 drugs, slightly less than in 2022, when 1,460 drugs received price hikes, the news outlet said, citing data published by 46brooklyn.”
The nonprofit 46brooklyn tracks how much Pharma companies raise drug prices.
It offers this somewhat confusing insight:
“…while these list prices are growing, when looking below the surface of the list prices of these drugs, the actual net prices of many of those medicines are actually in a state of decline. This means that while list prices may be rising, the financial fruits that are borne out of those increases are increasingly being harvested by drug supply chain intermediaries and more importantly, the full value of the concessions made off of list prices may not be getting passed along to plan sponsors and patients.”
I interpret that to mean that you won’t see much, if any, savings when it comes to your medicine.
FIERCE Pharma notes:
“Meanwhile, not all medicines are getting higher prices this year. GSK, for instance, plans to cut costs on some asthma, herpes and anti-epileptic drugs in 2024, a spokesperson told Reuters. GSK and two other companies are expected to lower prices on at least 15 medications in January, according to 3 Axis.”
But if we are to believe 46brooklyn, patients may not see much, if any, savings.
Some Good News About Drug Prices:
The good news is that the “Inflation Reduction Act” is kicking in. Some companies have announced lower prices, especially on insulin. That’s because the American Rescue Plan Act went into effect on January 1st. It requires pharmaceutical manufacturers to reimburse Medicaid on certain drugs if price increases outpace inflation.
In 2026 the Medicare program will be able to negotiate prices for some medications. According to HHS:
“The selected drug list for the first round of negotiation is:
• Eliquis
• Jardiance
• Xarelto
• Januvia
• Farxiga
• Entresto
• Enbrel
• Imbruvica
• Stelara
• Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill”
While companies are trying to avoid penalties by keeping price increases under 10% for older drugs, list prices for new medicines have been soaring.
According to Reuters (Dec. 29, 2022):
“In 2022, the price of newly launched drugs topped $220,000 from around $180,000 in the first six months of 2021 suggesting a more than 20% increase. That’s in line with a JAMA-published study on drug prices which showed that between 2008 and 2021 U.S. drug launch prices grew 20% annually.”
Big Pharma Pays Less Tax Than You Do:
How much do you pay in taxes each year?
According to the Organisation for Economic Co-operation and Development (OECD):
“In the United States, the average single worker faced a net average tax rate of 24.8% in 2022, compared with the OECD average of 24.6%. In other words, in the United States the take-home pay of an average single worker, after tax and benefits, was 75.2% of their gross wage, compared with the OECD average of 75.4%.”
What About Drug Companies?
An article in Quartz (May 17, 2023) points out that corporations pay less than average workers:
“The same isn’t true for corporations, however. They all pay a flat federal tax rate of 21%, regardless of their profit—a change introduced in 2017 as part of former US president Donald Trump’s corporate tax cuts. Previously they had brackets, too, up to 35%.”
“Yet companies often get away with paying much less. For example, eight big pharma players—AbbVie, Amgen, Bristol Myers Squibb, Eli Lilly, Gilead, Johnson & Johnson, Merck, and Pfizer—paid just above 2% in US taxes on a combined $110 billion in profits for 2022.”
“…Pfizer declared making only $5 billion of its $35 billion profit in the US last year, on total domestic sales of $42.5 billion. The company reported US operating losses of $2.9 billion in 2020, $4 billion in 2018, and $6.9 billion 2017—all despite getting most of its revenue domestically. For 2022, Pfizer ended up receiving half a billion dollars in US tax credits, as it did in 2021, and paid $4.2 billion in foreign tax.”
Drug company executives do quite well. PharmaVoice (May 4, 2023) lists Pfizer CEO Albert Bourla’s compensation:
“For instance, Pfizer CEO Albert Bourla, who led the pharma giant through the successful development of the first approved COVID-19 vaccine, pulled in a total of $24 million in 2022, according to the company’s 2023 proxy statement.
“Breaking Bourla’s paycheck down, though, reveals that his salary was a fraction of that total at about $1.7 million. The rest came in the form of an $8 million bonus, $7 million in stock options and $6 million awarded as stock. The success of the company and its shareholders as a result of the CEO’s actions resulted in a massive payout.”
A different CEO did even better:
“Leonard Schleifer, the head of Regeneron Pharmaceuticals who’s well-known for being the best paid CEO in the industry, brought in more than $135 million in 2021, prompting many to question how much a CEO can really be worth.”
Pity Johnson & Johnson’s CEO, Joaquin Duato. His compensation in 2022 was only about $13.1 million.
Final Words:
How much do you pay for your medicine? Are any of your medications outrageously expensive? What about your co-pays? Please share your story in the comment section below. You may find our eGuide to Saving Money on Medicine helpful. It can be found under the Health eGuides tab.
