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Medicare Spending on Prescription Drugs Far Outpaces Development Costs

AARP research shows pharmaceutical companies more than recoup their R&D costs

spinner image A bottle of Merck & Co. Januvia brand medication is arranged for a photograph at a pharmacy in Princeton, Illinois, U.S., on Monday, Oct. 23, 2017. Merck & Co. is scheduled to report quarterly earnings on October 27. Photographer: Daniel Acker/Bloomberg via Getty Images
Daniel Acker/Bloomberg via Getty Images

A new AARP analysis finds that the billions of dollars Medicare Part D spent over five years for just 10 top brand name prescription drugs more than made up for the money drugmakers say it costs to research and develop new medications.

AARP's Public Policy Institute looked at total Medicare spending between 2016 and 2020 on the 10 brand name drugs that the program spent the most on in 2020. This research found that, for example, Medicare spent $27.2 billion during that period to pay for Eliquis, a blood thinner used to treat atrial fibrillation (Afib), a condition that causes an irregular heartbeat. That's more than 10 times what the pharmaceutical industry says is the average cost to develop a new drug: $2.6 billion.

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"These findings speak to the drug companies’ ongoing argument that they can't reduce prices because they need that money for research and development," says Leigh Purvis, AARP Public Policy Institute director of health care costs and access."What this shows is that they've more than recouped those costs from Medicare Part D alone."

On average, total Part D spending on the drugs reviewed over the five-year period was more than five times higher than the average cost to develop a new drug.

As part of its Fair Drug Prices Now campaign, AARP has called on Congress to lower the prices of prescription drugs by allowing Medicare to negotiate prices with drugmakers, placing a cap on Part D out-of-pocket costs and levying penalties on companies that raise medication prices higher than the rate of inflation.

Purvis pointed out that the money the drugmakers get from Medicare doesn't include sales of the drugs through other types of health care coverage or sales in other countries. "This is just a small snapshot of how much money they are making from these drugs," Purvis said.

The AARP report also cited 2021 data from the U.S. House of Representatives Committee on Oversight and Reform, which found that from 2016 to 2020, the 14 leading drug companies spent $577 billion on stock buybacks and dividends—$56 billion more than they spent on R&D over the same period. The $2.6 billion average cost of development, Purvis said, is an industry-generated estimate and other researchers have challenged that figure as too high.

Medicare spending dwarfs development costs

Here's a look at what Medicare spent on 10 brand name medications from 2016 through 2020. In all cases, the spending was much more than the $2.6 billion the drug industry says it spends to  bring a product to market.

  • Eliquis, used to treat atrial fibrillation: $27.2 billion
  • Revlimid, used to treat cancer: $20.1 billion
  • Xarelto, used to treat atrial fibrillation: $16.7 billion
  • Januvia, used to treat diabetes, $15.9 billion
  • Lantus Solostar, used to treat diabetes, $12.7 billion
  • Imbruvica, used to treat cancer: $9.6 billion
  • Symbicort, used to treat asthma and COPD: $8.7 billion
  • Trulicity, used to treat diabetes, $7.9 billion
  • Ibrance, used to treat breast cancer: $7.8 billion
  • Jardiance, used to treat diabetes: $4.9 billion