U.S. prescription drug spending in 2014 increased by $43.4 billion, or 13.1 percent, relative to the previous year, reaching nearly $374 billion, The Wall Street Journal reported, citing data released by IMS Institute for Healthcare Informatics.
Four predominant factors accounted for the majority of the increase, which was the highest spike in spending since 2001: the approval of new "breakthrough" therapies such as Gilead Sciences' pricey hepatitis C drugs, Sovaldi and Harvoni; rising manufacturers' prices; fewer low-cost generic drugs becoming available than in previous years; and a greater number of prescriptions being filled by newly insured Medicaid beneficiaries.
Altogether, a record 4.33 billion prescriptions were filled last year. The 16.8 percent increase in the number of prescriptions covered by Medicaid accounted for 70 percent of the growth in prescription volume at retail pharmacies.
Spending for new brand-name drugs—those approved during the previous 24 months—surpassed $20 billion, compared with $6.5 billion in 2013. Solvadi alone attained sales of $7.9 billion, making it 2014's top-selling drug. Harvoni, launched last fall, has already exceeded Solvadi in sales, according to Murray Aiken, executive director of the IMS Institute. The Journal reported that more than 161,000 patients with hepatitis C initiated treatment last year, nearly a 10-fold increase from a year earlier.
Sales of diabetes drugs, the second-highest category after hepatitis C, totaled $32.2 billion, a 30.5 percent increase from 2013.
Approximately $10 billion of the increased spending in 2014 was attributable to manufacturers' price increases. Spending on older brand-name drugs reached $26.3 billion, up from $20.3 billion in 2013. At the same time, patent expiry on brand-name drugs reduced spending by less than $12 billion in 2014 versus a $19.6 billion reduction in 2013.
"It was truly a remarkable year," Aiken said. "We had an unusual confluence of events."
The IMS data were based on list prices for brand-name drugs, rather than the wholesale prices often used in reporting drug prices.
Our Take: Without a doubt this was the top story in health care this week. The drug spending data hit The Associated Press and spread like wildfire with sensational headlines, and with the exception of The Wall Street Journal and a few other business magazines, most outlets didn’t take the time to entangle all the reasons why prescription drug spending rose at such an astonishing pace.
We point this fact out to our pharma readers—particularly those with managed markets and market access responsibility—as pharma is once again on the verge of becoming media’s favorite whipping boy. But an unfavorable media generally has more of a negative effect on consumer opinion than its customers. Pharma should be more concerned with attention from employers and payers.
Today, PBMs are more actively involved than ever, particularly with the management of specialty drugs. For newer hepatitis C drugs, Express Scripts late last year sidestepped Gilead Sciences’ Solvadi and Harvoni, as well as Janssen Therapeutics’ Olysio, and went to Abbvie for deep discounts and exclusivity on Viekira—reportedly saving Express Scripts $1 billion per year.
Now that’s what you call an Organized Customer, and for good reason. According to the report, 161,000 patients started treatment for hepatitis C last year, about 10 times the number initiating treatment in 2013.
Express Scripts released its annual Drug Trends Report just weeks ago, prior to the latest media deluge over the IMS report. As it did late last year, the PBM went on the offensive:
“For the past several years, annual drug spending increases have been below the annual rate of overall health care inflation in the U.S., but that paradigm is shifting dramatically as prices for medications increase at an unprecedented and unsustainable rate,” said Dr. Glen Stettin, Express Scripts' SVP, in a statement accompanying the report. "Now, more than ever, plans need to tightly manage the pharmacy benefit, implement smarter formularies … to ensure all patients are able to achieve the best possible health outcomes at a price our country can afford."
PBMs are also stepping up use of exclusion lists on formularies, drugs that become fully out-of-pocket expenses for patients. CVS Caremark has 95 products on its formulary exclusion list, compared with 72 in 2014. Express Scripts has 66 products on its list, compared with 48 in 2014.
Express Scripts Chief Medical Officer Dr. Steven Miller told Managed Care that the increased use of formulary exclusion lists were in part “… to extract lower prices, because the manufacturers were now convinced—because of what we did with Walgreens and the statins—that we could actually deliver market share when we were motivated to.”
Miller said, “We went to the companies, and we told them, ‘We’re going to be pitting you all against each other. Who is going to give us the best price? If you give us the best price, we will move the market share to you. We will move it effectively. We’ll exclude the other products.’” Miller went on to say that they have an 18-member independent, self-governing Pharmacy and Therapeutics committee that only acts to exclude drugs that have clinically equivalent or better substitutes.
Gillead has defended the $84,000 price tag for a Solvadi course of treatment. The company maintains that its drug is appropriately priced: Sovaldi is effective in nearly 90 percent of patients, with fewer side effects, whereas the current cocktail treatment can take up to a year, with a much lower cure rate and significant side effects.
But the pharmacoeconomic argument only makes sense in a field void of competitors. If what Express Scripts claims is true—that it is saving $1 billion on this single decision—look for other CVS Caremark and Optum Rx to copy the formula.
In fact they already have, if only with less public fanfare.