From the Winter 2015 issue of For Your Benefit newsletter pdf format of fybwinter2015.pdf

Causes and Options for Managing

Rising drug costs are putting a tremendous strain on health care costs.  The Centers for Medicare and Medicaid estimate that drug spending will increase by six percent or more annually from 2015-2022 as both drug prices and utilization increase.  Why are drug prices high and going up?

They’re high to begin with:  Americans pay more for prescriptions than any other nation: 34% higher than New Zealand and 50% higher than United Kingdom (source: Pharmaceuticals’ Prescriptions for Profit over People).

Rising Drug Prices:  Specialty, Brand and Generic

Specialty Drugs:  These drugs are typically used to treat and/or manage less common but chronic diseases, such as multiple sclerosis, rheumatoid arthritis, hemophilia, and an array of cancers.  On average, the cost of one month’s supply of a specialty drug is over $2,500 with annual costs of treatment at over $75,000, with some treatment regimens exceeding $750,000 per year. 

One example is an effective new drug called Sovaldi for Hepatitis C that costs $1,000 per pill and $84,000 for the typical 12-week treatment.  Infectious disease specialists estimate as many as 200,000 Massachusetts residents could have the virus. A July 2014 survey pegs the state’s costs for treating every Massachusetts resident with Hepatitis C with Sovaldi at over $850 million.  As if $84,000 per patient wasn’t expensive enough, Gilead Sciences, the manufacturer of Sovaldi, just received FDA approval for Harvoni, a one pill regimen that combines Sovaldi with another medication that’s taken with it and can be used by 75% of the Hepatitis C patients to the tune of $94,500 per patient. 

  • In 2012, specialty drugs comprised only 1% of prescriptions written, but 25% of drug costs, according to a national pharmacy benefit manager trend report.  This report estimates that specialty drugs will account for 9% of total medical expenditures by 2020.
  • Specialty drug spending will increase by 17% -20% annually and will consume 50% of drug spending by 2018 according to FAMCP/Pfizer’s Top 10 Emerging Health Care Trends report.
  • CVS Caremark reports that more than 900 specialty drugs are in development, some of which are targeting common chronic diseases and conditions, including heart disease and diabetes.  Because specialty drugs are expensive to manufacture, there is little to no competition to keep costs down. Under current law, brand name biologic drugs are given a 12 year exclusivity period after FDA approval – meaning they have a monopoly on that drug for a long time.
  • Although $50 billion of specialty drugs will go off-patent by 2019, the lack of final regulations will reduce the development of biosimilars --drugs that are interchangeable with the specialty drug at lower costs.

Brand Name Drugs: Brand name drug prices increased by 14.4% in 2013, as the result of industry consolidation and manufacturers’ pricing strategies.  Although manufacturers claim that brand name drugs are expensive to research and develop, in fact, for every dollar spent on research, $19 goes toward promotion and marketing.  In 2012, the pharmaceutical industry spent more than $27 billion on drug promotion, with $24 billion geared to physicians and $3 billion in direct to consumer advertising according to the Pew Charitable Trust.  According to The Economist, manufacturers also hold on to the market power they have when a drug is under patent by delaying the expiration of a patent through creating similar drugs or derivatives of the original, and paying generic manufacturers not to compete, known as pay-for-delay.  Recent Federal Trade Commission reports estimate that pay-for-delay tactics cost $3.5 billion per year.

Generics:  During the third quarter of 2014, more than one-third of generic drugs became more expensive according to Drug Channels, a pharmaceutical economics website.  The generic pipeline is contracting as manufacturers exit the generic industry for the more profitable brand side, allowing remaining generic manufacturers to raise their prices.  For example, in July 2013, the cost of a tetracycline 500 mg capsule was $.05 and jumped to $8.59 in July 2014, a 17714% increase, according to an August 2014 report by Pembroke Consulting.

Utilization is increasing:  With an aging population and increase in lifestyle-related illnesses, including diabetes, hypertension, and cardiovascular diseases, the need for prescription drugs has increased.  Additionally, the recession put a damper on all health care spending and as the economy has improved, patients are using more health care, including filling more prescriptions.

So What are Possible Solutions to Rising Costs?

There’s no question but that prescription drugs can provide miraculous cures for those suffering from a wide variety of health conditions - relief they never would have had in the past.  Personalized medicine can help these patients receive the most appropriate and effective therapy.  New programs for managing costs must be weighed against adding too much of a financial burden on patients -- leading to discontinuation of drug regimens, which in turn leads to poor outcomes and higher costs.

The GIC has put many prescription drug programs in place for UniCare members and other GIC health plan members; some of these programs may be extended to other plans in the future:

  • Mandatory Generics – if there’s a generic equivalent of a brand name drug, the patient is responsible for the cost difference between the brand name drug and the generic, plus the copay if they want the brand name.
  • Step Therapy – requires patients to try effective, less costly drugs before more expensive alternatives will be covered.
  • Maintenance drug pharmacy selection – patients who receive 30-day supplies of their maintenance medication at a pharmacy must call the prescription drug plan to indicate whether they wish to continue using their retail pharmacy for maintenance medications, instead of ordering the medications through less costly mail order options.
  • Specialty Drug Pharmacies – patients who are prescribed specialty drugs must use a specialized pharmacy that provides 24-hour clinical support, education and side-effect management.  Medications are delivered to the patient’s home or doctor’s office. .

Other ideas to consider:

  • Adding a fourth copay tier – 17% of employers nationally have a separate copay tier for specialty drugs.
  • Adding co-insurance – patients pay a portion of a drug’s cost up to a maximum amount.  Forty-one percent of employers use coinsurance.
  • Increase the copay differential between the three tiers- 74% of employers have recently changed the copay differential between tiers.

The Commission voted in December to change the drug program for UniCare Medicare members to an Employer Group Waiver Program, a federal government Medicare Part D program, which will lower the GIC’s drug costs.  Premium and benefit subsidies may be provided to low income retirees meeting certain eligibility guidelines.  These changes will be effective January 1, 2016, and staff is currently working with our consultants to work out the steps for this implementation.  Further communications about the details will be sent out beginning this spring.

Rising prescription drug costs are a concern for continuing to provide quality, cost effective benefits.  This spring you will receive updates from the GIC about any changes that will be effective in the next fiscal year.  Stay tuned for more information


This information provided by the Group Insurance Commission.