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CBO on Specialty Drug Spending in Government Programs

By March 28, 2019Commentary

Specialty drugs are a substantial factor in rising health spending.  The Congressional  Budget Office examines trends in spending on these compounds in Medicare and Medicaid.   (CBO Report)    The programs take fundamentally different approaches to controlling costs.  Medicaid gets statutorily mandated rebates and discounts.  Medicare’s Part D program relies on the private plans to negotiate prices and for Part B drugs, those administered in physician offices or similar settings, there is a statutory formula for payment.  From 2010 to 2015  net spending on specialty medications rose from $8.7 billion too $32.8 billion.  Over the same period, net spending on such drugs in Medicaid went from $4.8 billion to $9.9 billion.  Although specialty drugs were 30% of all spending under Medicare Part D and Medicaid, they represented only 1% of prescriptions.

The average net price for the top 50 specialty drugs in Medicare Part D was $3600 but only $1920 for the same drugs in Medicaid.  For beneficiaries in Part D who had a specialty drug prescription, the average spending per person rose from $11,330 in 2010 to $33,460 in 2015.  Out-of-pocket spending for such beneficiaries also grew rapidly.  Medicaid has little or no cost-sharing.  The average weighted retail price for the top 50 drugs for Medicare and Medicaid was $4380 per prescription in 2015, but had a wide range of $250 to almost $43,000.  After rebates and discounts the per prescription price was $3600 in Medicare but only $1920 for Medicaid, showing the power of the statutory discounts and rebates.  Price increases, especially related to new drugs, were responsible for almost all the growth in per beneficiary spending in both programs.  Fortunately for both programs, decreases in spending due to greater use of generics has muted the overall effect of specialty drugs.  It is apparent, however, that as the mix of drugs continues to shift to specialty compounds, they will be a bigger and bigger problem.  And Part D and Part B may need to be given the power to use Medicaid discounts.

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