1. health and fitness
2. drugs

OnPoint: Health Policy Brief
A Bi-Monthly Publication by the Massachusetts Association of Health Plans
Volume 1, November 2014
Content researched by Courtney Cunningham and edited by Eric Linzer
Rx Reality Check:
Pharmaceutical Industry driving US Healthcare Costs
Prescription drug prices are on the rise in the United States. Pharmacy benefit managers reported significant price inflation in traditional brands, specialty
drugs and generics during 2013.i An analysis conducted for Bloomberg found that since October 2007, the cost of brand-name medicines has soared, with
prices doubling for drugs that treat conditions ranging from multiple sclerosis to cancer, blood pressure, and even erectile dysfunction.ii In Massachusetts,
prescription drug spending decreased by 4% from 2009–2010, but in
US Spending on Prescription Drugs, 2012
2010–2011 the statewide proportion of commercial medical spending for
prescription drugs increased by 2%. Nationally, drug spending rose sharply
last year, increasing 1.0% in 2013 compared to a decline of 3.5% in 2012.
iii
Fewer new generics entering the market and a leveling off of the generic
dispensing rate have contributed to some of the increases in prescription
spending, but a major contributor to rising prescription costs is the rapid
increase in prescription drug prices. Analysts at the IMS Institute for
Healthcare Informatics found that price increases for brand name drugs
increased spending by $4 billion last year.iv Further, the combination of
rising drug prices and increases in utilization are projected to result in an
annual 6.5% increase in prescription drug spending from 2015 through
2022.
Addressing these cost trends is critically important to ensuring a sustainable health care system and achieving affordability for Massachusetts employers and
consumers. Earlier this year, the Massachusetts Association of Health Plans (MAHP) conducted a survey of its members, examining prescription drug price
increases between 2012 and 2013 and identifying significant price increases for specialty and brand name drugs.
Specialty Drugs
Spending amounts in US$ billions
121%
109%
increase
from
2012
$87.1
$192.2
increase
from
2016
$401.7
While some segments of prescription drug spending have slowed, the cost of specialty drugs has risen
significantly. Despite accounting for 1% of prescriptions written in the US, specialty drugs account for
25% of prescription drug spending in 2012. This trend can be attributed to increased and faster FDA
approvals for specialty drugs, near-monopoly pricing,
and the growing introduction of new, more-targeted
MAHP Plan Specialty Drug Cost
treatments.
Specialty
Range of Price
The rapid uptake of Sovaldi, the costly Hepatitis C
drug, with an estimated $1,000 per pill price tag, took
Medicaid plans by surprise and the high costs were not
included in 2014 rates. MassHealth spent about $10.8 million on Sovaldi during the first three months of the
year. According to responses from a recent survey, MAHP Medicaid MCOs paid out a combined $60–65 million
on Sovaldi-related claims for rate year 2014.
2012
2016
2020
Drug
Increases
Humira
14.00-19.30%
Embrel
14-18%
Copaxone
9.8-14.1%
According to a recent survey, MAHP member plans experienced significant price increases in other categories in 2012–2013, as noted in the examples to the
right. Sovaldi is undoubtedly a breakthrough drug, however, it will have an unfortunate impact on budgets of health plans and the state. According to Express
Scripts, if all patients with Hepatitis C in Massachusetts were to obtain Sovaldi it would
cost the commonwealth $850,304,367. The Massachusetts companies that insure Medicaid
MAHP Plan Brand Name Drug Cost
patients experienced $140 million in losses since the start of the year; this deficit was in part
Drug
Disease
Range of Price
due to unfounded costs attributed to Sovaldi. On October 10, 2014, Gilead Sciences Inc.
Increase
won U.S. FDA approval to begin selling Harvoni, a once daily pill that combines Sovaldi
Lantus
Diabetes
19.7-45.4%
with another agent to treat hepatitis C. Harvoni is designed to treat genotype 1 hepatitis
C, the most common form of the virus that infects about 75% of people with the virus.
Abilify
Schizophrenia,
9.95-23.3%
The typical treatment will last 12 weeks and cost a total of $94,500 per patient. This price
bipolar disorder,
and depression
tag will inevitably impact consumers’ access to the breakthrough hepatitis C treatment and
health plan budgets.
Advair
COPD
8.57-34.1%
Continued on page 2
OnPoint: Health Policy Brief, Volume 1, November 2014
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Brand Name (non Specialty) Drugs
Unfortunately, the increase in prescription drug costs is not restricted to specialty drugs. According
to data from Express Scripts Inc., non-specialty brand medications have also contributed to rising
drug spending with prices rising at more than six times the overall price inflation of consumer
goods in recent years.v
For example, price increases for branded products added $4 billion more in spending growth in
2013 compared to 2012vi with over one-third of 2013 spending concentrated in five (5) therapies:
oncology ($27.9Bn), anti-diabetes ($24.3Bn), mental health ($23.8Bn), respiratory agents
($20.4Bn) and pain medications ($18.7Bn). vii Like increases in specialty drug prices, MAHP
plans have experienced similar trends for brand name drugs, with the greatest price increases in
therapeutics for diabetes, mental health, and respiratory disease as noted on the previous page.
The Pew Charitable Trusts Research & Analysis. Persuading the Prescribers: Pharmaceutical Industry
Marketing and its Influence on Physicians and Patients. November 11, 2013
Price Justification: Why the Rising Cost?
Inflated Prices: Americans pay more for prescriptions than any other nation, subsidizing drug costs for other countries. For example, U.S. consumers pay
prices that are on average 34% higher than those in New Zealand and 50% higher than those in the United Kingdom.viii
The Research and Development Fallacy: For every dollar spent on basic research, $19 goes toward promotion and marketing. While developing new and
innovative drugs can be costly, recent studies have found that only a small percentage of revenue actually goes into basic research. A substantially higher
percentage of revenues are spent on the marketing and promotion of drugs. Reports by the States National Science Foundation and the U.S. government
found that only 1.3% of revenues are devoted to basic research to discover new molecules, while it is estimated that on average at least 25% is spent on
promotion, creating a 1:19 ratio of basic research to marketing. According to the Pew Charitable Trust, in 2012, the industry spent more than $27 billion
on drug promotion, more than $24 billion on marketing to physicians, and over $3 billion on advertising to consumers.
Patents & Market Power: To encourage drug developers to accept upfront costs, the federal government allows pharmaceutical companies to temporarily
take singular control of the resulting drug through patents. Patents allow developers to set prices at will, sometimes resulting in profit margins that exceed
90 percent. During purchase negotiations, a drug company often has the leverage to refuse to negotiate, typically because it holds exclusive rights to a drug
that works better than anything else on the market.ix
Follow-on Patenting & Development of Closely Related Compounds: Once the patent expires, the monopoly disappears and the company must go on
the defense. Companies often turn to creating drugs that are similar or offshoots of the original. A British Medical Journal article stated that only 1 in 10
newly approved medicines substantially benefit patients. Many companies turn to paying makers of generics not to compete in order to maintain a hold on
the market. Since the early 2000s “pay for delay” agreements have become more common.
Solutions—Balancing Cost & Innovation
As the Commonwealth grapples with the cost of new specialty drugs at a time when the rate of growth in health costs is not to exceed 3.6%, the focus should be on
balancing cost control and promoting individual’s access to breakthrough treatments. Among the approaches that policymakers should consider to help change the
direction of the current trend in prescription drug spending:
1. Promote Comparative Effectiveness in Examining Treatments & Technologies. Consumers have a right to know which treatments and drug
regimens work and which are less effective. Understanding the medical efficacy and cost of new treatments, including prescription drugs, is essential
so that patients can make the most informed decisions about their care. In the absence of a national process for measuring both the cost and clinical
effectiveness of new procedures and drugs, states can fill that void. The Health Policy Commission or a collective of interested organizations should
bring together stakeholders — clinicians, patients, health plans, academics, pharmaceutical and device manufacturers – to evaluate the safety,
effectiveness and cost of new therapies, compare them to existing treatments, and identify high-value and low-value care options to ensure that
providers, payers, and patients are following best practice standards and evidence-based care.
2. Examine the Impact of New Drugs as Part of the State’s Annual Cost Hearings. As part of its annual health care cost trends hearings, the Health
Policy Commission should examine the challenges new technologies and advances in specialty drugs present at a time when the rate of growth in
health costs in the Commonwealth is not to exceed 3.6%. Examining these costs will help to promote understanding of whether these therapies are
improving patient care, what impact they are having on rising costs, and strategies for managing these costs and ensuring appropriate access.
3. Greater Transparency in Drug Pricing. Prescription drug prices can vary widely and the lack of transparency in the pricing of pharmaceutical drugs
contributes to rising costs for consumers and employers. Having more transparency, through public disclosure of average prices (AMP, ASP) could
improve efficiency of the pricing and the contracting negotiation process, reducing the variability between comparable drugs.
4. Recognize the cost of new therapies in state health programs. As new drugs and therapies come to market, the Commonwealth should recognize
these costs in the rates it pays. State programs, such as MassHealth and the GIC, should reflect the cost of new technologies in rates and have a process in
place to facilitate open dialogue focused on designing cost effective strategies so that coverage for groundbreaking pharmaceuticals and treatments are not
budget busters.
Footnotes
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
Prescription Drug Trend Increased in 2013. CVS Caremark
Big Pharma’s Favorite Prescription: Higher Prices. Bloomberg Businessweek. May 8, 2014
IMS Health Study: Spending Growth Returns For U.S. Medicines. IMS Institute for Healthcare Informatics Health, April 2014
IMS Health Study: Spending Growth Returns For U.S. Medicines. IMS Institute for Healthcare Informatics Health, April 2014
ICYMI: Prescription Drug Prices Continue to Soar. AHIP, 2012
IMS Health Study: Spending Growth Returns For U.S. Medicines. IMS Institute for Healthcare Informatics Health, April 2014
MS Health Graphic: Over one-third of spending is concentrated in the top 5 therapies; IMS Health 2014.
Pharmaceuticals’ Prescription for Profit over People. Alliance for a Just Society
VOX April 11, 2014 How does one pill cost $1,000?
OnPoint: Health Policy Brief, Volume 1, November 2014
2