Another Drug Spending Report

By April 26, 2018Commentary

The IQVIA Institute has picked up the mantle from the IMS Institute in issuing reports on drug spending.   (IQVIA Report)   According to the latest release, spending on prescription drugs rose .7% in 2017 from the prior year, after all discounts and rebates, or a 2.2% decline on a per capita basis.  Per capita spending is $876, which is pretty amazing and must be fairly concentrated among a relative few high spenders.  Over 46% of this represents use of specialty medication, which as predicted a few years ago, are heading toward being the majority of drug costs.  Total actual spending was around $324 billion, which reflects a 28% reduction from the gross invoice number of $453 billion, after accounting for all discounts and rebates.  Now you see how much discount money is sloshing around in the system for PBMs and others to take a piece of.  For medications dispensed through the mail and retail pharmacy channels, which account for $212 billion of overall costs, spending declined 2.1%.  This moderation in drug spending results largely from cheaper generics and the introduction of a few biosimilars.  Spending on generics actually declined by $5.5 billion.

Another research has pointed out, the use of drugs in outpatient and inpatient settings has increased and these are more expensive channels, usually used for infused and injectable drugs.  Health systems have seen this as a profit opportunity and spending in these non-retail settings rose almost 6% and is now 35% of revenues to manufacturers.  To give you a sense of the costs of specialty drugs, consider that they account for only 1.9% of prescription volume in the mail and retail channels, but over 37% of spending; while they are 2.3% of prescriptions in the outpatient and inpatient settings, but 60% of costs.  The total number of prescriptions hit 5.8 billion, 90% of which were for generics, and generics were used 97% of the time that they could have been.  That is impressive and consumers benefit as about 31% of prescriptions were filled with zero patient cost, likely all generics.  Hypertension, mental health and diabetes accounted for 55% of all prescription growth.  Opioid prescribing has continued a steep and needed decline, reflecting multiple programs designed at limiting abuse.

2017 was an active year for drug introductions, with 42 new active substances approved, 21 of which were for rare diseases and 14 for cancer.  Looking ahead to 2022, the report forecasts about 2% to 5% annual growth in net spending, with rises limited to 1% or 4% in the mail and retail channels that affect consumers most.  One thing to watch is the battle over manufacturer copay coupons, which reduce consumer out-of-pockets on expensive drugs, but support higher prices.  The use of these coupons continues to grow but regulation may be imminent and should be.  The report paints a welcome picture of very moderate net brand drug price increases and a reversal of some troublesome generic pricing trends, but also indicates that the tsunami of specialty drug introductions and costs is just beginning.  That will be hard for payers and consumers to cope with.

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