Specialty drugs made up about 3% of prescriptions in California in 2017 but accounted for more than half of the prescription drug spending that year, according to new report that compiled drug spending from nine insurers in that state.
According to the first Prescription Drug Cost Transparency Report released by the California Department of Insurance, there were about 270,000 specialty prescriptions compared to about 1.4 million brand-name prescriptions and about 8.9 million generic prescriptions in 2017.
Insurers—including Aetna, Anthem, Cigna, Kaiser Permanente and UnitedHealthcare—reported spending upwards of $606 million on specialty drugs, $271.3 million on brand-name drugs and $172.6 million on generics in 2017.
Among other findings, the report said:
In all, insurers reported that per member per month drug spending reached about $81 last year, or about 16.5% of premiums in 2017, comparable to per member per month spending of about $76 or 16.3% in 2016. Total health insurance premiums per member per month were about $491 in 2017, compared to about $470 in 2016.
Specialty prescriptions on average cost about $2,361 per prescription compared to about $236 for brand-name prescriptions and $29 for generics. Members typically pay about $113 per specialty prescription while insurers said they pay about $2,248 per specialty drug. They report members pay about $45 per brand-name drug, while insurers pick up $192 of the tab for brand names. And they report members typically pay about $10 for generics on average while insurers pay about $19.
The top 25 most frequently prescribed drugs in California represent about 40% of insurers’ overall spending. Specialty drugs make up about 1.3% of the 25 most frequently prescribed drugs and about 20% of insurers’ spending (resulting in a 3.7% impact on health insurance premiums.) In comparison, brand-name drugs make up about 6.8% of the most frequently prescribed drugs and about 11% of insurer spending (and a 1.2% impact on health insurance premiums). Generics represent about 32% of the most frequently prescribed drugs and 4% of the cost to insurers (and about .3% impact on premiums.)
The most frequently prescribed specialty drugs included HIV drug Truvada, immunosuppressant Humira, insulin therapeutic Humalog, diabetes drug Victoza and hormonal agent Androgel.
The most costly specialty drugs by total annual prescription drug spending included Humira, arthritis drug Enbrel, Truvada, psoriasis and psoriatic arthritis drug Stelara and multiple sclerosis drug Copaxone.
American pharmaceutical spending started taking off in the late 1990s compared with other advanced nations.
Two decades ago, the costs began rising well beyond that of other nations, and in recent years have shot up again. What can explain it?
There was a time when America approximated other wealthy countries in drug spending. But in the late 1990s, U.S. spending took off. It tripled between 1997 and 2007, according to a study in Health Affairs.
Then a slowdown lasted until about 2013, before spending shot up again. What explains these trends?
By 2015, American annual spending on prescription drugs reached about $1,000 per person and 16.7 percent of overall personal health care spending. The Commonwealth Fund compared that level with that of nine other wealthy nations: Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and Britain.
Among those, Switzerland, second to the United States, was only at $783. Sweden was lowest, at $351. (It should be noted that relative to total health spending, American spending on drugs is consistent with that of other countries, reflecting the fact that we spend a lot more on other care, too.)
Eliminating Some Suspects
Several factors could be at play in America’s spending surge. One is the total amount of prescription drugs used. But Americans do not take a lot more drugs than patients in other countries, as studies document.
In fact, when it comes to drugs primary care doctors typically prescribe — including medications for hypertension, high cholesterol, depression, gastrointestinal conditions and pain — a recent study in the journal Health Policy found that Americans use prescription drugs for 12 percent fewer days per year than their counterparts in other wealthy countries.
Another potential explanation is that Americans take more expensive brand-name drugs than cheaper generics relative to their overseas counterparts. This doesn’t hold up either. We use a greater proportion of generic drugs here than most other countries — 84 percent of prescriptions are generic.
Prices are a lot higher for brand-name drugs in the United States because we lack the widespread policies to limit drug prices that many other countries have.
“Other countries decline to pay for a drug when the price is too high,” said Rachel Sachs, who studies drug pricing and regulation as an associate professor of law at Washington University in St. Louis. “The United States has been unwilling to do this.”
For example, except in rare cases, Britain will pay for new drugs only when their effectiveness is high relative to their prices. German regulators may decline to reimburse a new drug at rates higher than those paid for older therapies, if they find that it offers no additional benefit. Some other nations base their prices on those charged in Britain, Germany or other countries, Ms. Sachs added.
That, by and large, explains why we spend so much more on drugs in the United States than elsewhere. But what drove the change in the 1990s? One part of the explanation is that a record number of new drugs emerged in that decade.
Huge sales for new and expensive drugs
In particular, sales of costly new hypertension and cancer drugs took off in the 1990s. The number of drugs with sales that topped $1 billion increased to 52 in 2006 from six in 1997. The combination of few price controls and rapid growth of brand-name drugs increased American per capita pharmaceutical spending.
“The scientific explosion of the 1970s and 1980s that allowed us to isolate the genetic basis of certain diseases opened a lot of therapeutic areas for new drugs,” said Aaron Kesselheim, an associate professor of medicine at Harvard Medical School.
He pointed to other factors promoting the growth of drug spending in the 1990s, including increased advertising to physicians and consumers. Regulations on drug ads on TV were relaxed, which led to more advertising. More rapid F.D.A. approvals, fueled by new fees collected from pharmaceutical manufactures that began in 1992, also helped push new drugs to market.
In addition, in the 1990s and through the mid-2000s, coverage for drugs (as well as for other health care) expanded through public programs. Expansions of Medicaid and the Children’s Health Insurance Program also coincided with increased drug spending. And Medicare adopted a universal prescription drug benefit in 2006. Studies have found that when the potential market for drugs grows, more drugs enter it.
In 2007, U.S. drug spending growth was the slowest since 1974. The slowdown in the mid-2000s can be explained by fewer F.D.A. approvals of blockbuster drugs. Annual F.D.A. approvals of new drugs fell from about 35 in the late 1990s and early 2000s to about 20 per year in 2005-07.
In addition, the patents of many top-selling drugs (like Lipitor) expired, and as American prescription drug use tipped back toward generics, per capita spending leveled off.
The spike starting in 2014 mirrors that of the 1990s. The arrival of expensive specialty drugs for hepatitis C, cystic fibrosis and other conditions fueled spending growth. Many of the new drugs are based on relatively recent advances in science, like the completion of the human genome project.
“Many of the new agents are biologics,” said Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. “These drugs have no meaningful competition, and therefore command very high prices.”
A U.S. Department of Health and Human Services issue brief estimated that 30 percent of the rise in drug spending between 2000 and 2014 could be attributed to price increases or greater use of higher-priced drugs. Coverage expansions of the Affordable Care Act also contributed to increased drug spending. In addition, “there has been a lowering of approval standards,” Dr. Bach said. “So more of these new, expensive drugs are making it to market faster.”
“As in the earlier run-up in drug spending, we’re largely uncritical of the price-value trade-off for drugs in the U.S.,” said Michelle Mello, a health law scholar at Stanford. “Though we pay high prices for some drugs of high value, we also pay high prices for drugs of little value. The U.S. stands virtually alone in this.”
Outlook for the future
If the principal driver of higher American drug spending is higher pricing on new, blockbuster drugs, what does that bode for the future? “I suspect things will get worse before they get better,” Ms. Sachs said. The push for precision medicine — drugs made for smaller populations, including matching to specific genetic characteristics — may make drugs more effective, therefore harder to live without. That’s a recipe for higher prices.
CVS also recently announced it would devise employer drug plans that don’t include drugs with prices out of line with their effectiveness — something more common in other countries but unheard-of in the United States. Even if these efforts don’t take off rapidly, they are early signs that attitudes might be changing.