It’s hard to believe that it has been a year since we first heard about COVID-19. The good news is that hope is on the horizon!
According to a January 2021 study conducted by Harvard University and Politico, federal action to lower prescription drug prices ranks as second highest healthcare policy priority among Americans today. However, the degree with which drug pricing is veiled from the public makes it difficult to focus on where the issues may lie, thereby making it harder to provide transparency.
This study came on the heels of major drug price hikes in January – with greater increases than any in the last decade. At the beginning of 2021, more than 100 drug manufacturers collectively raised the price of over 929 medications. The first week of the new year alone saw 636 medications raised on average 4.99%, with 99% of these hikes outpacing the current inflation rate of 1.4%. This should be alarming and of great concern to consumers and payers – especially as the US spends almost double what other similarly developed wealthy countries spend annually on health care.
With the current administration focused on containing the pandemic and stimulating the economy, drug prices have taken the backseat, with the exception of its decision to freeze policy changes from the previous administration aimed at lowering drug costs. There is hope, however, as drug prices are not the biggest factor impacting a plans drug spend. Elevated prices of medications only matter if those medications are utilized. Or, said another way, utilization is what drives the increased costs in the pharmacy space and not drug prices, and the data support this!
Ten years ago, specialty pharmaceuticals were utilized by less than 1% of the population. Between 2017 and 2019 we saw an 18% increase in utilization, jumping from 3.4% to now 4% of the population utilizing a specialty medication. During that same time span the Per Member Per Year (PMPY) specialty drug cost rose from $562 to $829. Of the 15% increase in PMPY Specialty Drug cost between 2017 and 2018, 2.2% was due to cost per claim increases and 12.8% attributed to utilization. This continued through 2018 and 2019 seeing another 13.6% increase in PMPY specialty drug cost with 3.3% coming from increased claim cost and the remaining 10.3% attributed to utilization.
A focus on drug costs essentially loses sight of the forest for the trees, as a multitude of factors drive utilization increases in specialty pharmacy: increased utilization by existing specialty utilizers, new first-time specialty utilizers, new indications for existing specialty medications and new-to-market specialty medications treating traditionally non-specialty disease states, such as asthma, all plays a role in drug pricing.
Annual drug cost changes can be distracting. To regain focus, make certain your pharmacy benefits partner understands that blaming drug costs and inflation for a plans trend increases is addressing only the tip of the iceberg. Appropriate medication management ensuring the drug mix is made up of the most efficacious and cost-effective medications is a start. In the medication space, new and expensive does not necessarily translate to better results or healthier patients. Additionally, establish sound clinical criteria and programs built to ensure the medication being prescribed is and continues to be appropriate. Lastly, finding a partner willing to think outside the box and collaborate with you on customized and unique solutions for your specific claims mix can protect you from raising drug costs.