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Data: Centers for Medicare & Medicaid Services; MACPAC; Kaiser Family Foundation; Chart: Naema Ahmed/Axios

State and federal spending on prescription drugs is dramatically outpacing inflation, even after accounting for rebates, according to a new analysis of federal data.

The big picture: Rebates lower drug spending, as their proponents argue. But they also reinforce a system that's incredibly complex and costly — especially for people who take a lot of medications and have to pay sizable amounts out of pocket.

By the numbers:

  • Gross spending on prescription drugs in federal and state insurance programs totaled $268 billion in 2018.
  • Net spending, after accounting for the rebates that are negotiated between drug companies and pharmacy benefit managers, was about one-third lower, at roughly $189 billion.
  • Gross spending for Medicare and Medicaid increased an average of 11.4% annually from 2014 to 2018, while net spending rose by an average of 7.2% per year.

That means even when accounting for rebates, drug spending has been growing at a relatively high rate.

Between the lines: Pharmaceutical companies and PBMs have created a Rube Goldberg system in which each side benefits.

  • Pharmaceutical companies raise their list prices and justify those hikes as ways to offset the bigger rebates they have to pay out.
  • PBMs announce bigger rebates, all while getting large taxpayer subsidies to guard against severe losses.
  • Both, therefore, benefit from higher drug prices.

What they're saying: If this system of rebates and federal reinsurance existed in auto insurance, insurers would be seeking "higher-risk drivers, with the hopes that more fender-benders can yield" big returns, the founders of drug research firm 46brooklyn said in a new analysis.

The bottom line: Taxpayers generally continue to pay more for prescription drugs, and sick patients are most exposed to rising prices.

How we did this analysis: The 46brooklyn analysis inspired us to go deeper.

Go deeper

Updated 1 hour ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Global: Total confirmed cases as of 6:30 a.m. ET: 30,199,007 — Total deaths: 946,490— Total recoveries: 20,544, 967Map
  2. U.S.: Total confirmed cases as of 6:30 a.m. ET: 6,675,593 — Total deaths: 197,644 — Total recoveries: 2,540,334 — Total tests: 90,710,730Map
  3. Politics: Former Pence aide says she plans to vote for Joe Biden, accusing Trump of costing lives in his coronavirus response.
  4. Health: Pew: 49% of Americans wouldn't get COVID-19 vaccine if available today Pandemic may cause cancer uptick The risks of moving too fast on a vaccine — COVID-19 racial disparities extend to health coverage losses.
  5. Business: Retail sales return to pre-coronavirus trend.
Mike Allen, author of AM
2 hours ago - Politics & Policy

Scoop: Mike Bloomberg's anti-chaos theory

CNN's Anderson Cooper questions Joe Biden last night at a drive-in town hall in Moosic, Pa., outside Scranton. Photo: CNN

Mike Bloomberg's $100 million Florida blitz begins today and will continue "wall to wall" in all 10 TV markets through Election Day, advisers tell me.

Why it matters: Bloomberg thinks that Joe Biden putting away Florida is the most feasible way to head off the national chaos we could have if the outcome of Trump v. Biden remained uncertain long after Election Day.

Biden's hardline Russia reset

Photo Illustration: Eniola Odetunde/Axios. Getty Images photos: Mark Reinstein

When he talks about Russia, Joe Biden has sounded like Ronald Reagan all summer, setting up a potential Day 1 confrontation with Russian President Vladimir Putin if Biden were to win.

Why it matters: Biden has promised a forceful response against Russia for both election interference and alleged bounty payments to target American troops in Afghanistan. But being tougher than President Trump could be the easy part. The risk is overdoing it and making diplomacy impossible.