Prescription Drugs. Medicare & Medicaid Briefings National Health Policy Forum February 22, Jim Hahn Congressional Research Service

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1 Prescription Drugs Medicare & Medicaid Briefings National Health Policy Forum February 22, 2007 Jim Hahn Congressional Research Service

2 Global and US. Prescription Drug Sales, $700 $ $ Current US$ (billions) $400 $ $200 $ $ World US Source: IMS Health Total Market Estimates and Global Pharma Forecasts 2 CMS Office of the Actuary, National Health Expenditures.

3 Prescription Drugs as a Percentage of Total U.S. Health Expenditures, % 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: CMS Office of the Actuary, National Health Expenditures 3

4 Life Cycle of Drugs Research & Development Patents Clinical testing and approval Market introduction, maturity Competition (?) Long run state / End of product life 4

5 Research and Development Drug development process typically takes years Clinical trials ~ 5-10,000 compounds to produce one approved drug Expensive to bring a drug to market (~ $500 - $800 million?) 5

6 Patents Incentive to innovators to assume risk. Provides the inventor with the sole right to exploit the invention (monopoly) for a given number of years. Economic rationale: Innovation might be reduced if new ideas/products are easily copied. 6

7 Drug Taxonomy By production Brand name/single source Competition and no competition Generics/Multi-source By availability Prescription Over-the-counter (OTC) 7

8 Drugs by Therapeutic Category Across Countries 2006 US$ (millions) 0 20,000 40,000 60,000 80, , , , , , ,000 US Country Japan Germany France UK Italy Canada Spain Brazil Mexico Aus /NZ CARDIOVASCULAR CENTRAL NERVOUS SYS ALIMENTARY/ MET. RESPIRATORY ANTI- INFECTIVES MUSCULO-SKELETAL GENITO- URINARY CYTOSTATICS BLOOD AGENTS DERMATOLOGICALS SENSORY ORGANS DIAGNOSTIC AGENTS SYSTEMIC HORMONES MISCELLANEOUS HOSPITAL SOLUTIONS PARASITOLOGY Argentina Source: IMS Health - Retail Drug Monitor 8

9 Top U.S. Brand Name Drugs by Retail Sales, 2005 US$ (000s) $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 Lipitor $6,320,522 Product Nexium Prevacid Zocor Advair Dis kus Zoloft Plavix Effexor XR Singulair Norvasc Protonix Ambien Lexapro Seroquel Actos 3,436,794 3,327,919 3,106,628 2,830,047 2,561,069 2,480,042 2,219,469 2,089,348 2,060,364 1,957,950 1,932,940 1,849,528 1,718,988 1,605,016 Source: Verispan : Vector One : National (VONA) 9

10 Top Generic Drugs By Retail Sales, 2005 US$ (000s) $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Hydrocodone/APAP Gabapentin 1,402,037 $1,476,866 Amoxicillin/Pot Clav 1,105,912 Paroxetine 896,393 Product Oxycodone Lisinopril Metformin Omeprazole Fentany Transdermal Amoxicillin Fluoxetine Oxycodone w/apap Albuterol Aerosol Lovastatin Levothyroxine 728, , , , , , , , , , ,497 Source: Verispan : Vector One : National (VONA) 10

11 Top Brand Name Drugs by Prescriptions 2005 US$ (000s) 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Lipitor 63,219 Toprol XL Norvasc Synthroid 30,695 33,598 32,580 Product Zoloft Lexapro Ambien Zithromax Z-Pak Nexium Zocor Singulair Prevacid Plavix Advair Diskus Fosamax 26,976 24,788 23,145 23,029 22,883 22,325 22,167 22,152 18,823 18,289 17,915 Source: Verispan : Vector One : National (VONA) 11

12 Top Generic Drugs by Prescriptions 2005 US$ (000s) 0 20,000 40,000 60,000 80, , ,000 Hydrocodone/APAP 101,639 Amoxicillin Lisinopril Hydrochlorothiazide Atenolol 52,104 47,829 42,757 42,001 Product Furosemide Oral Alprazolam Albuterol Aerosol Levothyroxine Metformin Ibuprofen Cephalexin Prednisone Oral Triamterene w/hctz Propoxyphene-N/APAP 34,782 34,230 32,679 32,465 29,202 24,327 24,092 23,001 22,820 22,655 Source: Verispan : Vector One : National (VONA) 12

13 Generics Account for About Half of US Prescriptions and a Quarter of Retail Sales 100% 90% 80% 70% 60% 50% Generic Brand 40% 30% 20% 10% 0% Retail Sales Prescriptions Source: Verispan : Vector One : National (VONA) 13

14 Pharmaceutical Industry and Integral Related Organizations Manufacturers PhRMA, GPhA Wholesalers HDMA, PDA Pharmacists NACDS, NCPA Health Care Facilities FAHS, AHA Pharmacy Benefit Managers PCMA Third Party Insurers AHIP Food and Drug Administration Prescription Drug User Fee Act (PDUFA) 14

15 Top Pharmaceutical Companies Company Country Healthcare Revenue 2004 (US$ millions) Pfizer USA 52,516 Bristol-Myers Squibb USA 47,348 GlaxoSmithKline UK 37,318 France- Germany 31,615 Sanofi-Aventis Novartis Switzerland 28,247 Hoffmann-La Roche Switzerland 25,163 Merck & Co. USA 22,939 AstraZeneca UK-Sweden 21,427 Abbott Laboratories USA 19,680 Johnson & Johnson USA 19,380 Source: Top 50 pharmaceutical companies, MedAdNews, September Source: Med Ad News, Sept. 2005

16 Medicare and Medicaid Beneficiaries and Prescription Drug Market Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Medicare & Medicaid Other Recipients Prescriptions Rx Spending Source: NACDS Economics Department August

17 Concluding Comments Patents and monopoly rights affect competition and prices in the market for prescription drugs. Prescription drug prices can vary substantially ( price discrimination ). The appropriate balance between innovation and low consumer prices is controversial. 17

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19 Government Approaches Administered prices Reference pricing Negotiation Direct Indirect 19

20 H.R. 4 the Secretary shall negotiate with pharmaceutical manufacturers the prices (including discounts, rebates, and other price concessions) that may be charged to PDP sponsors and MA organizations for covered part D drugs for part D eligible individuals Nothing in paragraph (1) shall be construed to authorize the Secretary to establish or require a particular formulary. 20