Why does drug spending continue to rise?
Q: This article is part of a series published annually by the AAmerican Journal of Health-System Pharmacy. You’ve been the lead author for three years. What is the purpose of the series?
It helps healthcare organizations and policy makers understand prescription drug spending trends. This is getting a lot of attention because drug spending is always a hot topic. Even my parents are concerned about the cost of prescription drugs.
With COVID, the issue has become particularly important due to all the new therapeutic agents that have become available. Until now, the government has paid for many of them, but we are going to reach an inflection point where we return to the traditional way of managing and paying for these pharmaceuticals which will have an impact on the general public.
We already have a clue. Remdesivir, the only COVID-related drug that was not paid for by the government, was the number one expense for hospitals. The $3.1 billion spent on it in hospitals was more than the next three drugs combined.
Q: Overall, in 2021 pharmaceutical spending in the United States was $576.9 billion. This is an increase of 7.7% compared to the previous year. However, these figures do not include vaccines or COVID treatments that have been paid for by the government. How do health organizations prepare for the possibility that COVID persists but government coverage of therapeutics does not?
It looks like COVID is not something that will go away. In my role at Mayo Clinic, I try to forecast the kind of funds we will need for COVID therapies in the future. Will we do annual COVID boosters in the fall, like we do for the flu vaccine? Will the government fund this year? Until next year ? Within health care organizations across the country, there are real questions about, “If the government isn’t funding, what are we going to do?” »
I think it is difficult to move forward until the government has made a decision. Whatever the decision, I think we can find a way forward, but until then we can’t really plan or contract with manufacturers. At some point, we have to get out of this public health emergency phase and move on to what we’re doing with managing other diseases.
Q: What can patients learn from this article?
From the patient’s perspective, I think there’s actually a lot of good stuff in the diary. There have been general trends in health care where more costs are passed on to patients, and this amplifies patient concerns about rising drug costs. But drug price inflation and consumer price inflation diverged. At a time when inflation is hovering around 8%, drug prices are relatively stable. We don’t know when broader inflation will affect drug prices, but it’s currently positive for the consumer.
“Generic drugs account for about 90% of prescriptions filled each year, but only 20% of spending. It’s the Pareto principle: 10% of the drugs prescribed represent 80% of the cost.
Generics have been a major moderating factor in the cost of prescription drugs. Generic drugs account for about 90% of prescriptions filled each year, but only 20% of spending. It’s the Pareto principle: 10% of the drugs prescribed represent 80% of the cost. But most of the very expensive new drugs developed in the last 20 to 30 years are biologic drugs. There was no generic route for these until recently – biosimilars are the equivalent of generics for biologic drugs. Over the past three years, biosimilars have really started to have a material impact. Their adoption is beginning to blunt the cost of drugs. This is a positive development for consumers, and it will continue to improve.
Overall, the top drug expense was a drug called Humira. This will face competition from biosimilars in 2023. Every year, new generics and biosimilars become available and generate savings.
In this area, if I were to guide policy makers on ways to slow the growth of pharmaceutical spending, I would point them to the number of lawsuits that are slowing the introduction of generics and biosimilars.
Q: Do these positives for consumers mean challenges for pharmaceutical companies?
Pharmaceutical companies are certainly facing inflationary pressures, and it is becoming increasingly difficult to develop new therapies and bring them to market successfully.
Last year, a drug called Aduhelm for Alzheimer’s disease came out. At first it was exciting. It was one of the pharmaceutical industry’s high hopes, but it turned into controversy when questions were raised about the cost and quality of the data supporting its approval. In the end, essentially, the drugs went nowhere.
This whole market is potentially going to be slowed down as a result. For a while, the return on investment figures for the pharmaceutical industry made it one of the most favorable sectors of the economy. Ten years ago, the development of new drugs by the pharmaceutical industry was probably easier and more lucrative than it is today.
Q: What is driving the increase in pharmaceutical spending year over year?
When people see these numbers about rising drug spending, they often think it’s just that prices have gone up. It is important to understand that the increase in pharmaceutical expenditure comes from three main factors: increases in price, volume and drug mix. We’ve found that over time it’s fairly evenly split across these three factors. Over the past five years, prices have not been the main driver of increased spending. Last year, healthcare organizations were very full and always busy, so there were huge increases in healthcare utilization – in volume – coming from the COVID crisis and the attempt to catch up on care delayed during the worst of the pandemic.
When hepatitis C therapy came out and when immune checkpoint inhibitors were launched as oncology therapies, they were revolutionary and very expensive therapies. They changed the mix of drugs used and dramatically increased spending. However, hepatitis C therapies have largely cured hepatitis C by reducing long-term care costs and improving lives with economic benefits.
Historically, we have also seen other hard-to-predict events impact drug spending. For example, the H1N1 flu increased expenses. Even things like hurricanes that cause enough damage to produce drug shortages can show up in drug spending data. It’s hard to predict exactly what the thing is going to be, but there is going to be something that will cause a spike in one of the pilots, but it tends to average out over time.
The good thing is that when you have a lot of data, you can slice it in different ways to understand the different trends going on. The series has nine co-writers. We are a diverse group from different parts of the country and different areas of practice. So we each bring a different goal to the table. Looking at trends over time, you see that even with something like COVID, things will normalize over time.