The cost of prescription drugs has received a good deal of attention recently, driven in part by a spike is spending in 2014 and 2015. After several years of fairly low growth, per capita prescription drugs costs are estimated to have increased by 11.4 percent in 2014 and are projected to increase by 6.8 percent in 2015. The surge in spending is largely the result of high prices for new brand name drugs and price increases for some existing branded drugs. CMS actuaries project per capita drug spending to increase faster over the next 10 years, between 4 and 6 percent annually, than in the recent period prior to 2014.
The costs of prescriptions has also become a hot-button issue with consumers and policymakers. One in four people taking prescription drugs report difficulty affording their medication and a recent Kaiser Family Foundation opinion poll found bipartisan support for government action to lower prescription drug costs, with the majority of both parties placing this among the top health care priorities for policymakers. Presidential candidates from both parties have raised prescription drug costs as an important issue.
Our latest chart collection, embedded in full below, examines some of the most recent trends in pharmaceutical spending, and what to look for in the future.
The Rx Slowdown: 2008 – 2013
Per capita spending on prescription drugs grew in the low single digits, even dropping below zero in 2010 and 2012. This was largely due a number of drugs going off patent, and the recession likely had some effect on utilization as well. According to an analysis by Altarum, low pharmaceutical growth was a main contributor to the overall slowdown in health spending growth during this period.
The Sudden Spike: 2014 – 2015
This slow growth in drug costs came to an abrupt halt in 2014, when pharmaceutical spending is estimated to have grown by 11.4 percent on a per capita basis — the highest annual growth in more than a decade. Consumers are likely to have picked up some of these additional costs: CMS estimates suggest that while out-of-pocket spending on doctor visits and hospital stays declined in 2014, consumer spending on retail drugs increased. However, the majority of the additional costs are expected to have been picked up by insurance companies and government programs.
Driving this spike in drug spending in 2014, according to IMS Health, was a combination of the introduction of new brand name drugs and higher prices for existing brands. Additionally, patent expires did not exert as much downward pressure on drug spending in 2014 as in previous years.
Many of these new brand drugs are so-called specialty drugs, meaning they are used to treat complex and chronic conditions like cancer, rheumatoid arthritis, and multiple sclerosis. These drugs often have high prices and have been an increasing focus of drug company research and development. One drug in particular that received a great deal of attention was Sovaldi, the $1,000 a pill treatment for Hepatitis C. But Sovaldi is just one of several new high-cost specialty drugs. In fact, since 2010, more specialty drugs have been approved each year than traditional drugs.
Express Script’s price index for generics declined from 2013 to 2014. Though there are some notable examples of recent steep price increases for generics, other generic prices have decreased.
What to look out for: 2016 and beyond
The Centers for Medicare and Medicaid Services (CMS) expects that pharmaceutical spending growth will moderate in 2016 and beyond. They project that per capita drug spending will grow between four and six percent annually from 2016 through 2024.
From our review of a number of 2016 premium rate filings submitted to state regulators, it appears that some insurers were caught off guard by the costs of some new-to-market drugs in 2014 and 2015 and are citing drug costs as one reason for the need to increase premiums in 2016. Something else to look for in coming years will be how insurers build new, high-cost drugs into their plan formularies. On one hand, higher out-of-pocket exposure may help contain societal spending on drugs, but on the other, the high-cost drug may offer better long-term value than standard treatments. For example, at $1,000 per pill, the cost for a course of Solvaldi could approach $100,000 in a matter of weeks, but it may also obviate the need for other, even more costly treatments over a lifetime with Hepatitis C. Private insurers, particularly in the individual market, though, may not retain enrollees long enough to realize these longer-term savings.
The upcoming presidential election may continue to encourage debate over appropriate policy responses to address the underlying causes of high drug costs. Most Americans believe that the U.S. spends more than other countries on the same drugs — and this belief is held up by research from the International Society of Health Plans, which surveys costs for brand-name drugs in the U.S. and comparable countries. However, other countries regulate prices and this may not be a politically feasible — or appealing — option in the U.S.