CPI for health care services is lagged and imperfect so we tend to just keep it around to be consistent. However, inflation data on Medical Care - Commodities tends to be a more accurate description of what is going on. And what is going on is that commodities, which disproportionately represent pharmaceuticals continues to accelerate. The CPI data are consistent with what we also see in Personal Consumption Expenditures and the Producer Price Index.
The acceleration began in earnest in the 4th quarter of 2022. Certain labor and other input costs are having an effect. So is policy, the Inflation Reduction Act probably inspired some anticipatory price increases. Interestingly, based on preliminary work, it does not appear these price increases are making their way to the revenue line in quite the way you might expect.
Instead, it appears that fees to wholesalers and plans may have accelerated. The reasons why are not quite clear. Is the loss of exclusivity causing biopharma to buy market share with performance-based fees and other chargebacks? Or is there something else going on? It is worth thinking about in light of the FTC's activism on the AMGN acquisition of Horizon and their use of a novel theory on pharmacy benefit managers.
As Paul Glenchur pointed out in our discussion last week, the FTC is going to be involved in a substantive way and perhaps we are not quite thinking about it as critically as we should.
Let me know what questions you have.
Emily Evans
Managing Director – Health Policy
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