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Prescription drug costs currently account for just 11 percent of overall health spending but drug costs are once again coming under scrutiny as important drivers of healthcare spending.
Spurred by blockbuster drugs like Lipitor and Plavix going off patent and increased use of generics, drug spending had moderated in the last decade since the high growth period of over decade ago.1 Two important trends are bringing this period of low drug spending growth to an end: increased spending on prescription drugs, and the diminishing cost-saving impact of generic drugs.
High Cost of Specialty Drugs
Of greatest concern is that the cost of new specialty drugs is truly prohibitive. The term “specialty drug” does not have a uniform definition. The term broadly comprises drugs that are: high priced; often (but not always) made of biological matter; treat complex conditions; require special handling; or require infusion or injection in a doctor’s office.
Twelve of 13 cancer drugs approved by the FDA in 2012 were priced over $100,000 per course of treatment.2 Specialty drugs are used by fewer than 1 percent of privately insured patients in the United States. However, these drugs currently account for more than 25 percent of all drug spending.3
What’s more, specialty drug spending is projected to account for an astounding 50 percent of drug spending by 2020.4
Generics Becoming More Expensive
High rates of generic substitution will continue, but will do less and less to bring down overall spending. In coming years as the market value of products expected to go off patent are significantly less than some of the blockbusters that went off patent in 2012.5
A second reason generics are less likely to moderate future spending is that the costs of many generic drugs are increasing. The reason for these generic cost increases are complex and are due to many factors from raw material shortages to generic competitors leaving the market. But whatever the reason, many drugs that have been historically inexpensive have seen sharp price increases. One analysis found that half of all retail generic drugs became more expensive over from mid-2013 to mid-2014. Some generic drugs have seen as much as 1,000 percent increase in price.6 Another reason is because more of these alternatives will take the form of biologics, which are high cost and, as the name implies, made of biological matter.
Impact on Consumers
These cost trends mean higher premiums for consumers and plan benefit designs that mean higher cost-sharing and even discriminatory designs.
Another market response to high costs is to limit patient choice. For example, the nation’s largest pharmacy benefits manager, CVS, negotiated an exclusive deal with and AbbVie Inc., a drug maker of an alternative to Sovaldi, in exchange for a discounted price.
Options for Curtailing Rx Costs
Options for curtailing high Rx costs include:
It will take a sustained effort by consumers, payers, purchasers working at both the state and federal level to make headway on these issues and ensure that healthcare costs are to be sustainable and access to life saving drugs is preserved. In the short-run, advocates may want to consider getting involved in benefit design rules being discussed in state Marketplaces to try to mitigate the impact of high drug costs on sicker enrollees.
Light, Donald W. and Kantarjian, Hagop, "Market Spiral Pricing of Cancer Drugs," Cancer (November 15, 2014)
Starner, Catherine I., and Caleb G. Alexander, “Specialty Drug Coupons Lower Out-of-Pocket Costs and May Improve Adherence at the Risk of Increasing Premiums,” Health Affairs, Vol. 33 No. 10 (October 2014).
S. Johnson, et al., Specialty Drugs Are Forecasted to be 50 Percent of All Drug Expenditures in 2018, Prime Therapeutics, University of Minnesota College of Pharmacy, Minneapolis, MN.
Purvis, Leigh, Retail Generic Drug Inflation Reaches New Heights, Drug Channels