Half of every dollar spent on brand medicines goes to entities that play no role in the research, development, or manufacturing of those medicines, according to a new analysis by Berkeley Research Group (BRG).
The report’s findings highlight a growing problem: spending on medicines is padding the profits of middlemen and subsidizing many parts of the health care system, often at the expense of patients.
So, where exactly is the money going? It’s going to middlemen like PBMs and insurers who are aggressively consolidating their control over health care; mandatory government fees and rebates; hospitals, clinics and for-profit pharmacies in the 340B markup program; and patient assistance programs designed to help patients in a commercial insurance market that increasingly covers less while charging patients more.
WHERE'S THE DRUG DOLLAR GOING?
PBMs, insurers, Group Purchasing Organizations (GPOs) and others in the supply chain retained the largest share of spending among non-manufacturers. In 2023, $170 billion in rebates, discounts, fees and other payments from biopharmaceutical companies went to these middlemen. While this represents 25% of all brand spending, middlemen can take up to 80% or more on some medicines. These payments lower the cost of medicines for insurers and PBMs, yet patients are often forced to pay their out-of-pocket costs based on the full undiscounted price, leading patients to pay more than they should for their medicines.
340B providers and for-profit companies now get 18 times more of the drug dollar than they did a decade ago while patients, taxpayers and employers are saddled with a hidden tax that inflates their costs. The largest share of 340B costs is driven by hospital markups—where big tax-exempt hospitals markup drugs up to 7x or more.
Biopharmaceutical companies paid $79 billion in rebates, discounts, and fees to government programs, including Medicaid and Medicare Part D. The Inflation Reduction Act (IRA) will further increase the amount of spending going to the government, eroding the investment in future research and development.
As insurers force commercially covered patients to pay higher out-of-pocket costs, biopharmaceutical manufacturers provide billions in assistance to help them afford their medicines. This assistance represented nearly $23 billion in spending. Unfortunately, it’s not all getting to patients. In fact, insurers and PBMs kept nearly $5 billion of cost-sharing assistance for themselves through abusive copay accumulator and maximizer programs.
WHAT’S DRIVING DRUG SPENDING GROWTH?
Growth in Spending on Brand Medicines (2022-2023)
From 2022 to 2023, spending on medicines increased $39 billion. The rebates, fees and other payments middlemen siphon out of the system was the single largest driver of this growth in spending. The second largest contributor was the growth 340B hospital markups and 340B provider and pharmacy profit on prescription drugs. These costs continue to increase because there’s no oversight or transparency. Worse, the money isn’t going to help low-income and uninsured patients.
As policymakers continue to look for ways to address rising health care costs and spending on medicines, the report’s findings are essential to help diagnose the right problems and pinpoint meaningful solutions. That starts with common sense reforms that put an end to insurer and PBM abuses, fix the IRA, reform the 340B markup program and ensure patient assistance goes to patients, not middlemen.