Prescription Drug Spending Trends

As employers, patients, and other stakeholders continue to struggle with the rising cost of healthcare (and health insurance!), one particular component of overall healthcare spending seems to be occupying the majority of attention – prescription drugs!  In 2019, the U.S. is projected to spend $500 billion on prescription drugs alone, which marks a 12x increase from less than 20 years ago!*  A number of factors are at play in the cost pressures affecting drugs, on both the supply and demand side.   Much is being discussed and debated on the topic of addressing skyrocketing drug prices, including government intervention on a number of fronts.  Needless to say, we are closely monitoring developments in the area of prescription drug trends.  So here is the first of likely several posts addressing some of the more pressing matters affecting prescription drug use and spending.  (*IMS Health, “IMS Health Study: Spending Growth Returen for U.S. Medicines, April 25, 2014)

Without question, the increasing number, and use, of specialty medications is a major cost driver.  These types of drugs, often taken intravenously, are prescribed to treat conditions such as hepatitis C, cancer, HIV/AIDS, and rheumatoid arthritis.  In 2016, specialty drugs comprised fewer than 2% of total volume, yet accounted for nearly 40% of spending ($180 billion).  And in 2014, nearly half of the drugs approved by the Food and Drug Administration (FDA) were specialty drugs, which speaks to their rising use and popularity.

Another driver of Rx costs is the changing payer mix.  While the Affordable Care Act (ACA) brought millions of insured Rx purchasers to the mix starting in 2014; Medicare’s Part D was perhaps an even bigger contributor back in 2006.  Medicare Rx expenditures soared from 1.9% in 2005 to 17.7% in 2006.  Interestingly,  the portion of Rx paid by private insurers increased from 27% in 1990 to 43.5% in 2013 resulting in a reduction of consumer out of pocket in this same time period from 56.8% to just 16.9%…a huge win for consumers!

Perhaps most alarming is what the Centers for Medicare & Medicaid Services (CMS) projects will happen with Rx spending throughout the decade of 2012-2022, which is a whopping 75% growth trajectory.  Through 2024, CMS sees annual growth averaging 6.3%, which is about a half percentage point higher than overall healthcare spending for this same time period.

Look for a number of cost control strategies to be deployed at all levels of the economy from government to private payers to employers.  These will include, but certainly not be limited to:

      • Managing usage – this comes in a variety of forms including step therapy,  mandatory generics, generic substitutions, prior authorization, and higher plan related out of pocket levels.
      • Alternative (i.e., not insurance) drug payment methods – using grocery store $4 drugs; websites like; tax preferred spending accounts, cash, etc.
      • Rebates and discounts – there is currently much discussion about the federal government “pressuring” the pharmaceutical industry and pharmacy benefit managers (PBMs) to end the practice of rebating dollars back to employers and plans.
      • Employee/Consumer awareness – as healthcare consumers become more savvier through the use of decision support tools, vouchers, coupons, websites, etc., they will see the significant cost savings potential relative to Rx.