If you’ve noticed your pharmacy bills creeping up, you’re not the only one. A recent report from prescription management company Express Scripts shows that prescription drug spending in the United States rose by 13 percent in 2014 – the largest annual increase in more than 10 years. And these increases don’t just affect patients, they affect payers and providers as well.
The U.S. prescription drug industry is enormous. Americans filled 4.3 billion prescriptions last year, at a cost of nearly $374 billion, according to the IMS Institute for Healthcare Informatics. Prescription drug costs make up 15.9 percent of health care costs for an average family of four, according to the Milliman Medical Index.
Why the increase?
Dramatic increases in the prices of both specialty drugs and compounded medications are the key culprits in rising costs, according to the Express Scripts report.
Although they represent only 1 percent of U.S. prescriptions overall, specialty drugs for treating conditions such as cancer, multiple sclerosis, HIV and Hepatitis C made up 31.8 percent of drug spending last year – with some therapies priced at thousands of dollars per month, or even per pill. A recently approved treatment for Hepatitis C, for example, is priced at $33,000 for a 30-day supply. When prices go up, copays and premiums are also likely to go up, according to industry analysts.
Thomas Kowalski, director of Clinical Pharmacy at Blue Cross Blue Shield of Massachusetts, points out that pharmaceutical companies spend heavily during research and development, as well as on advertising and marketing when a new drug is released.
“Drugs have always gone up more than the consumer price index, but with specialties, the prices are just skyrocketing,” Kowalski said. “It’s unfortunate, but it’s what they’re doing to recoup costs.”
The good news, he said, is that some of the new drugs being launched – such as Hepatitis C therapies – offer a much higher cure rate than was previously possible (now up to 90-95 percent), meaning that patients will require less care in the long run.
“Theoretically,” he said, “you are looking at an uptick and then a downswing in costs.”
In addition to specialty drugs, costs have risen for compounded medications – such as customized dye-free medications and liquid forms for pediatric use – which are frequently formulated behind the counter at special pharmacies. Drugs for prevalent chronic conditions like diabetes and high blood pressure are in higher demand, so prices have risen. And new, expensive treatments for cancer and multiple sclerosis became available last year.
As the population ages and chronic conditions become more pervasive, increased demand allows pharmaceutical companies to raise prices.
The American health care system relies on lower-cost generic drugs to help control health care costs. But over the past few years, the number of new applications for generic drugs approved by the U.S. Food and Drug Administration remained relatively steady, while the number of applications received for approval increased significantly. This backlog could also cause drug prices to rise.
When mergers and acquisitions take place and a company ends up with multiple therapies within the same category, thereby reducing competition, “pricing power” can help them negotiate higher prices with health insurers, according to a recent Bloomberg News story on pharmaceutical costs.
What the future holds
With many factors at play, predicting what will happen with costs over the next few years is challenging. Based on what’s being researched and developed, however, Kowalski said we can expect to see continuing increases.
“Looking at drugs in the pipeline,” he said, “there’s nothing really new coming along in the traditional tablet and capsule formulations, so they’re starting to look at more rare conditions that require specialty drugs – which are expensive.”
The Express Scripts analysis says the rise in specialty drug pricing, “… will slow to more sustainable levels in the next three years,” but will still increase each year by more than 20 percent. For traditional drugs, the report predicts that widespread availability of generics and a “relative lack of brand innovators” for most drug categories “will keep traditional drug spending from increasing substantially.” Diabetes and anti-coagulants are two exceptions that may see significant price increases.
What we can do
Insurers, providers, pharmacy plan managers, and even the federal government are working to find solutions to help mitigate prescription drug cost increases. Kowalski noted that as part of its closely managed pharmacy plan, Blue Cross Blue Shield has installed “edits” in its coding system to close a loophole that had allowed pharmacies to charge exorbitant amounts for compounded medications by charging separately for each ingredient.
“There are a lot of things that we’ve found out and have stopped,” he said. “Our message to physicians has been, be careful what you’re being asked for, and be careful what you sign off on, especially for prescription compound requests faxed to you.”
What can employers do? The main thing is to help staff understand how important it is to maintain their health, particularly when managing a chronic condition.
“The preventative things are really important,” Kowalski said. “Remind them to go for screenings, get vaccines, and try to maintain a healthy lifestyle.”
Patients also need to know exactly what they are taking and ask their physician how long they will need to take each medication.
“Make sure it’s the right medication,” Kowalski said. “Is it working? Is it time to stop, check lab values after six months and re-evaluate?”
Employees can also engage with their pharmacist – an often overlooked resource for information about medications – and should avoid getting medications that aren’t needed. A full bottle of prescription painkillers, for example, probably isn’t necessary for a minor dental procedure.
With medications for chronic conditions, most pharmacy plans offer mail order options to help control costs. And generics are still generally cheaper than brand name drugs.
Ultimately, it’s important for employees to adhere to medical advice and the recommended course of treatment.
“Not getting prescriptions filled can lead to more hospital stays and more time lost,” Kowalski said. “We want everyone to get the medications needed to get better.”
Ann Ludlow is Manager of MIIA’s Health Benefits Trust.