Issue No. 22: Rising Minimally: That’s the Non-Fake News About Drug Prices

Meanwhile, the Use of Advanced Medicines Is Increasing, and That’s Good News

Despite what you hear from politicians, most drug prices are going down.
 
That’s the clear conclusion of the mid-year report of Prime Therapeutics, one of the nation’s largest pharmaceutical benefit managers (PBMs). For its commercially insured patients, Prime says the unit cost of drugs – that is, the average price of an individual prescription -- fell by an average of 2.8% for the first half of 2017. At the same time, utilization – that is, total prescriptions written – increased by 3.6%. So, overall, spending on drugs by Prime’s commercial clients increased by 0.8% for the first half of 2017 compared with the same period last year.
 
As Adam Fein wrote on the Drug Channels blog:
 
The data demonstrate that public perception of outrageous drug spending growth has not caught up with 2017’s realities. Sorry to be the bearer of non-fake news.
 
Prime, which recently entered into a partnership with Walgreen’s, is a PBM for more than 20 million Blue Cross-Blue Shield members in 14 states. Its report confirms other recent reports that drug prices are rising minimally.
 
For example, during the full year 2016, members of the CVS Health PBM experienced unit-cost increases in 2016 of only 1.2%. Total spending rose 3.2% because of more utilization, but 38% of commercial clients saw their spending on drugs decrease. Express Scripts reported that unit costs rose 2.5% in 2016 and total spending, 3.8%. “The average member out-of-pocket cost for a 30-day prescription was $11.34, only a 9-cent increase from 2015,” reported the PBM, which is the nation’s largest. For CVS members, prescription-per-month costs fell 39 cents. (Insured families pay about 15% of the total cost of medicines.)
 
Drilling Down on the Prime Therapeutics Data
 
But let’s get back to the Prime mid-year update, issued on Oct. 12, and do some drilling down.

Prime divided up its report among commercial, Medicaid and Medicare clients. For commercial members, the unit cost of “traditional” drugs, including generics – which account for about nine out of ten prescriptions – and commonly used brand-name drugs, declined a stunning 8.6%. Even after accounting for increased usage, total spending on traditional drugs dropped 5.1%.
 
The unit cost of “specialty” drugs – highly advanced medicines, often administered in hospitals and doctors’ offices and treating such diseases as cancer – rose 3.7% on average. Utilization of specialty drugs rose 11.5%. Remember that for health costs overall, an increase in the use of these powerful medicines is a good thing. Patients taking innovative drugs have a better chance of avoiding expensive stays in hospitals, whose share of total health-care spending is more than three times greater than that of medicines.
 
For Prime’s Medicare Part D clients, the mid-year report was even better. Overall, unit costs fell 0.7%, utilization rose 0.6%, so total spending dropped0.1%. Here is the breakdown: 

Prime also has Medicaid clients. For them, results were even better – thanks to decreases in unit costs for both traditional and specialty drugs. Overall, despite a 1.8% increase in utilization, Medicaid-client spending dropped 1.8% for the first half of 2017. Here are some details on the traditional vs. specialty breakdown:

The reduction in unit costs for specialty medicines for Prime’s Medicaid clients appears to be the mainly the result of a 35% drop in spending on Hepatitis C drugs, a category where competition has accelerated and where the medicines are quickly curing patients, who then have no need for the drug.
 
Top Spending Categories: Diabetes, Autoimmune, Cancer
 
The top spending category is diabetes, which ranks first for Medicaid and Medicare among Prime clients and a close second for commercial clients. Overall, one in every seven dollars of spending, according to the report, went to diabetes.
 
Among conditions treated by commercial clients, autoimmune diseases (such as rheumatoid arthritis, psoriasis and Crohn’s) ranked first. In fourth and fifth places were cancer and multiple sclerosis. Together, these three conditions represent one-quarter of all Prime patient spending – and all those conditions are treated with specialty drugs. Spending on such medicines is rising: by 25% for autoimmune, 20% for cancer and 4% for MS during the first six months of 2017 compared with the same period last year. By contrast, for six of the seven other top 10 drugs on the Prime list, spending fell.
 
The best antidote for rising prices is competition, which is having a powerful effect on traditional drugs. But specialty drugs are another matter. They are often biological products, and, as we noted in our last newsletter (see Issue No. 22 here), the competitive process that has worked with generics for traditional medicines is often thwarted for biologics. If policy makers truly want to have an effect on drug prices, they should turn their attention to clearing a path for biosimilars.
 
The Role of Drugs in Overall Health-Cost Increases

Altarum Institute’s Center for Sustainable Health Spending last week came out with data through Sept. 30, and the numbers provide important perspective on the real role that drug spending plays in overall health costs.
 
For example, let’s compare spending over the two-period ending this September. According to the Altarum data, total national health spending rose by $288 billion. Of that increase, hospital spending accounted for $76 billion; physician and clinical spending, $65 billion; and pharmaceuticals, $31 billion. A category termed “Administration and net cost of health insurance expenditures” registered an increase of $33 billion.
 
Here’s another way to look at the two-year rise…

Calculations based on Health Sector Economic Indicators, through September 2017;
Altarum Institute’s Center for Sustainable Health Spending

These figures, of course, do not say anything about the quality of the treatment provided. For drugs, at least, innovation is providing helping people live better and longer. That extra $50 or so a year is buying better medicines.
 
By the way, health spending overall increased 4.3% for the year ending Sept. 30, compared with an increase of 3.7% for GDP – not a lot of difference.
 
Still, there’s good reason to be worried about how much we spend on health care – now 18% of GDP or about twice as much as the average developed nation. This difference is exaggerated by the lack of social spending in the U.S. compared to other countries. Spending on family benefits and incapacity accrues to good health, and, as a proportion of GDP, France, for example, spends half-again as much as the United States. Still, we can’t address costs coherently unless we peel away the mythology and look straight at the facts.
 
It’s Not Surprising That the U.S. Spends More on Health Care Than
Other Countries; We’re Richer

The focus on how much we spend on health care, however, is distracting us from concentrating on the real problem: how we spend those health-care dollars. At 18% of GDP, the U.S. does indeed spend more than any other country in the Organization for Economic Co-operation and Development, or OECD. But this should not be surprising.

First, when one adds  in social spending, which includes family benefits, incapacity and other activities that impact health, the proportion of total spending to GDP is about the same. The U.S. devotes about 19% to social spending while many countries in the OECD spend over 25%., including Denmark, at 29%, and France, at 32%. Second, the fact that the U.S. spends more on health care is entirely expected when one considers the wealth and income of the United States. For example, the per-capita GDP of the U.S. is 46% greater than that of the average nation in the European Union and 39% greater than Japan’s.

Richer nations naturally tend to spend more on things that improve overall quality of life. And health care – along with education and entertainment -- tops the list. So the fact that the U.S. spends more on health care proves only that the U.S. is a wealthy country. What we really need to know is what is causing the inefficiencies in our system and what do we need to do to fix the problem. We can’t address costs coherently unless we peel away the mythology and look straight at the facts.

First Study of Multi-Year Cancer Costs
 
A good example of a clear-eyed view comes from a study by Gabriela Dieguez, Christine Ferro and Bruce Pyenson of the research firm Millman Inc., presented Nov. 7 to the Cancer Innovation Coalition. The study represented the first multi-year research into the costs of cancer. Specifically, the researchers examined records of 145 million Americans with commercial insurance and looked at treatment for lung, colorectal and breast cancers, starting a year before diagnosis and ending three years after diagnosis.

Over the entire four-year period, a patient with lung cancer incurred $282,000 in costs; with colorectal cancer, $165,000; breast cancer, $101,000 (all cancers in the study were diagnosed in 2011). Out-of-pocket costs were $11,000 for lung and $8,000 for both colorectal and breast cancers.
 
The researchers also examined the categories in which the costs were incurred, and the results are eye-opening. The costs of “chemotherapy, chemotherapy administration, and related drugs (including related outpatient and professional services)” were, of course, roughly zero before diagnosis. About a year later, cumulative cancer-drug costs had slowly increased to about 20% of cumulative total costs and levelled off there for the remaining two years of the study. By contrast, cumulative hospital inpatient, professional services (unrelated to chemo), and facility costs peaked at over 80% of total spending shortly after diagnosis, then levelled off a year later at 60%.
 
As for monthly out-of-pocket (OOP) costs, let’s use colorectal cancer as an example. Those monthly costs peak in the month of diagnosis at $914, then quickly drop to about $100. Cancer drugs accounts for an average of about 10% of OOP costs for the entire three-year post-diagnosis period.
 
The cost of cancer drugs gets a great deal of publicity, but, in reality, the Millman researchers show, those costs represent a small proportion of total treatment expenditures and an even smaller proportion of out-of-pocket costs.
 
Again, to get health-care policy right, we need to deal with fact and not myth.