Earlier this year, IMS Health released a report indicating that overall drug spend in the United States increased by 3.2% in 2013.1 That increase stands in contrast to the 1% decline in drug spend in 2012.1 IMS noted that primary drivers of the increase include fewer patent expirations, drug price increases, expensive new drug therapies, and greater use of the healthcare system. Considering these drivers, all indications are that drug spend will continue to increase in the years to come.
Ms Carnegie
Earlier this year, IMS Health released a report indicating that overall drug spend in the United States increased by 3.2% in 2013.1 That increase stands in contrast to the 1% decline in drug spend in 2012.1 IMS noted that primary drivers of the increase include fewer patent expirations, drug price increases, expensive new drug therapies, and greater use of the healthcare system. Considering these drivers, all indications are that drug spend will continue to increase in the years to come.
The Affordable Care Act and related healthcare reform initiatives have created greater access to healthcare coverage and prescription drug services. Drug spending will also increase as the Medicare Part D coverage gap shrinks and as Medicare enrollment grows with more and more baby boomers retiring. The 2014 Medicare Trustees Report predicts that benefit payments will be up 14% in 2014 and that by 2023 Medicare Part D benefit payments are expected to be 147% higher than in 2013.2
The greater availability of generic drugs due to recent blockbuster drug patent expirations has been widely credited as a key to controlling overall healthcare spending. In the last year, however, payers and consumers have seen a dramatic increase in the price of generic drugs. Consolidation in the generic manufacturing industry, import bans, and drug shortages appear to be contributing factors to skyrocketing generic prices. The cost of the generic heart drug, digoxin, which used to cost pennies a pill, has nearly doubled in the last year. In the face of supply problems, the common generic antibiotic doxycycline has also experienced significant price increases. As the number of generic drugs impacted by these price spikes grows, payers must grapple with how to cover once cost-effective and previously widely available generic drugs.
Due to drug development in the biotechnology sector and greater specialty utilization, spending on specialty drugs represents an increasing share of US prescription drug costs.3 It has been estimated that spending on specialty drugs will total more than $400 billion by 2020 and will comprise almost half of all prescription drug spending and 9.1% of national healthcare spending.3 Specialty drugs typically account for a disproportionate share of overall drug spending due to their extremely high cost.
One only has to look to the recent furor over the hepatitis C drug Sovaldi (sofosbuvir, Gilead Sciences) to understand the difficult cost and access issues that can be raised by specialty drugs. Although Sovaldi represents a breakthrough in hepatitis C treatment, its $84,000 price tag ($1,000 per pill) has payers, policymakers, and consumers all debating its use and struggling to determine appropriate coverage criteria.
In light of the foregoing, plans are faced with an increasing need to proactively address these drug pricing trends in their formulary development and management.
Exclusions, specialty drug tiering, and integration of the pharmacy and medical benefit represent a few of the formulary design strategies gaining traction. Over the past few years, formulary exclusions have emerged to block access to specific products. For 2015, CVS Caremark and Express Scripts have both increased the number of drugs on their formulary exclusion lists. Express Scripts is up to 66 exclusions and CVS Caremark excludes 95 products, including line extensions and new strengths until they have been reviewed by CVS Caremark’s pharmacy and therapeutics committee. Notably, each pharmacy benefit manager’s list excludes certain specialty drugs. Payors are also addressing the high cost of specialty drugs through the creation of specialty tiers (usually tiers 3 or 4) and through the imposition of coinsurance requirements that shift a portion of the specialty drug costs to consumers. Similarly, integration of the pharmacy and medical benefit not only allows for appropriate coinsurance rates but also enhances the ability of the plan to track the usage of specialty drugs.
The use and effective implementation of medication adherence programs can also serve to address rising drug costs. It is estimated that failure to adhere to prescribed medication regimes accounts for up to $317.4 billion in unnecessary healthcare costs.4 Well-structured adherence programs can help to ensure that patients remain on therapy and prevent costly relapses and complications.
Innovative strategies such as value-based purchasing and outcomes-based contracting are also emerging in the marketplace. Under such arrangements, payment is contingent on specified standards for quality, safety, clinical effectiveness, and health outcomes. These programs open the door for payers, through appropriate financial incentives, to promote the use of high-quality products proven to be effective and to discourage the use of high-cost, underperforming products. Greater use and the ultimate success of these arrangements will depend on the increased use and widespread availability of comparative effectiveness data.
In a marketplace in which drug coverage and pricing is constantly evolving, plans and payers will need to closely monitor drug pricing developments and consider a variety of formulary, benefit design, and contracting strategies to effectively address drug cost and access issues.
References
1. IMS Health. Medicine use and shifting costs of healthcare: a review of the use of medicines in the U.S. in 2013. http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c753c71ad8c22a/?vgnextoid=2684d47626745410VgnVCM10000076192ca2RCRD&vgnextchannel=736de5fda6370410VgnVCM10000076192ca2RCRD&vgnextfmt=default. Accessed September 30, 2014.
2. 2014 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2014.pdf. Accessed September 30, 2014.
3. Express Scripts. 2013 Drug Trend Report. http://lab.express-scripts.com/drug-trend-report/introduction/year-in-review. Accessed September 30, 2014.
4. Express Scripts. Infographic: predicting Rx nonadherence. http://lab.express-scripts.com/insights/adherence/infographic-predicting-rx-nonadherence. Accessed September 30, 2014.
Ms Carnegie is a member of the law firm Mintz Levin Cohn Ferris Glovsky and Popeo, working from their Washington, DC, office. She focuses much of her practice on counseling health plans, pharmacy benefit managers, pharmacies, device manufacturers, and distributors on regulatory and compliance matters, also counseling on drug pricing and reimbursement issues.