Transcript Trends in Health Care Costs

Prescription Drug Trends
Sean Keehan, Senior Economist
Office of the Actuary
Centers for Medicare and Medicaid Services
Middle Atlantic Actuarial Club
September 17, 2009
Overview
• Recent historical trends in prescription drug
spending
• NHE Prescription drug projections – process
and results
• Issues that will impact the future drug
spending trend
• Discussion and Questions
Historical Prescription
Drug Spending
Definitions and Data Sources
National Health Expenditure Accounts Definition:
• The category of prescription drugs includes retail sales of
human-use dosage-form drugs, biologicals and diagnostic
products. The transactions to purchase prescription
drugs occur in community pharmacies, grocery store
pharmacies, mail-order establishments, and massmerchandising establishments.
Data Sources:
• Census of Retail Trade
• National Prescription Audit – IMS Health
• Program data for Medicare, Medicaid, and other public
programs
Determining the Historical Trend
Gross trend:
• The estimate is benchmarked to the Census of Retail Trade,
which is believed to be the most reliable source on retail drug
sales
• For years following the last census, IMS Health data is
primarily used to determine spending growth
Net trend:
• Spending estimates need to be adjusted for rebates and intrahealth system transfers
For more information, see Smith, Cynthia, “Retail Prescription Drug Spending In
The National Health Accounts,” Health Affairs (January/February 2004): 160167.
Growth in Prescription Drug Spending and National Health
Expenditures (NHE), 1980-2007
Rx Growth
NHE Growth
Source: M. Hartman et al., “National Health Spending in 2007,” Health Affairs, Jan./Feb. 2009: 246-261.
Why has growth slowed so much
since 1999?
• Strong growth in utilization of lower-priced
generic drugs than for higher-priced brandname drugs
– Programs were created to encourage use of
generics and discourage use of brands
• Lower new drug introductions
• Drug safety concerns
NHE Prescription Drug
Spending Projections
NHE Projections Model
• Contains four exogenous components
– Population growth
– Economy-wide price inflation
– Medicare growth
– Medicaid growth
NHE Projections Model
• Contains two endogenous components,
determined by econometric models
– Relative medical price inflation
– Real per capita private personal health care
spending
NHE Projections Model
Aggregate prescription drug spending
growth
(real per capita)
• Real per capita disposable personal
income, 3-year moving average (+)
• Relative prescription drug price
inflation * Drug out-of-pocket share (-)
• Generic dispensing rate (-)
• New drug introductions, 4-year moving
average (+)
Relative prescription drug price inflation
• Prescription drug input price inflation
(CMS market baskets), lagged one year (+)
• Drug research spending, 4-year moving
average (+)
Prescription Drug Spending Growth,
1980-2018
Source: A. Sisko et al., “Health Spending Projections Through 2018,” Health Affairs 28 (2009): w346 – w357 (published online 24
February 2009).
Factors Accounting for Growth in
Prescription Drug Spending Per Capita
1
2
We use the CPI for prescription drugs and medical supplies to represent prescription drug price growth.
Utilization includes increases in treatment rates (# of users receiving treatment for a condition) as well as increases in
treatment intensity (# of treatment days per year). As a residual, this factors also includes changes in therapeutic mix (shifts
within a therapy class to higher or lower cost brands) and any errors in measuring prices or total spending.
Drug Spending in 2008
• Projected to have continued to slow, from 4.9
percent in 2007 to 3.5 percent in 2008
– The slowdown is coming from utilization, which
went from 2.7 percent in 2007 to 0.2 percent in
2008; most of the utilization declines came from
people in private plans who were affected by the
downturn in the economy
– Price growth accelerated from a near-term low of
1.4 percent in 2007 (Wal-mart effect) to 2.5
percent in 2008
Drug Spending in 2009
• Projected to be slightly higher than 2008 at 4.0
percent with small increases expected in price
and utilization growth
– Economic concerns are still a factor that dampen
expected growth
• PBM data for the first 2 quarters of 2009
generally show a small increase in spending
growth for their books of business
Drug Spending from 2010 to 2013
• Utilization increases expected because of the
assumed recovery in the economy
• Price growth is expected to flatten in 2012 and
2013 as a few top-selling brand-name drugs
(ex. Lipitor) go off patent
Drug Spending from 2014 to 2018
• Higher growth expected as the effect of new
generics become smaller
– Large increases in the generic dispensing rate in
2002 to 2007 cut spending growth by 2 to 3
percentage points each year
• New drug approvals, the most uncertain part
of our projection, are projected to increase
and begin to add to spending growth in the
last half of the projection period
Issues that will impact the
future drug spending trend
Drugs losing patent protection
• Over $63 billion in brand-name drug sales in 2008
are expected to lose patent protection over the next
5 years
– Paragraph IV certification – an important section of the
1984 Hatch-Waxman Act that allows generic companies to
ask courts to challenge enforcement of a patent; the first
generic company to prevail in this type of lawsuit will
receive market exclusivity of 180 days for their generic
– When a drug loses patent protection, the most significant
decline in spending comes the year after the patent loss
$ Billion
Patent Expirations
Source: U.S. Food and Drug Administration
Drug Pipeline
• Innovation today is concentrated in biologic or
specialty drugs; the category with the most
development is oncology
– These drugs would have high prices if approved
• Many believe that it will be difficult to
increase the number of drugs approved each
year because recent safety concerns has made
the FDA more cautious
The Drug Development Process
• Eight Stage Process – takes 10 to 12 years to complete
– (1) Discovery Stage
– (2) Preclinical Animal Testing
– (3) IND filing
– (4) Phase I of clinical testing
– (5) Phase II of clinical testing
– (6) Phase III of clinical testing
– (7) Long-term animal studies
– (8) New drug approval
• Most cited cost estimate is $802 million (2000 dollars) but
some have said this could be as much as $2 billion
Other potential trend drivers
•
•
•
•
•
•
New or expanded indications for existing drugs
New dosage forms/new combination products
Conversions to OTC status
Use of pharmacogenomic testing approaches
Changes in disease prevalence
Prescribing practices/clinical recommendations
Health Reform
• Brand-name drugs would be half of the cost
for Medicare beneficiaries in the donut hole
• A pathway for bio-similars or generics for
biologics would be established
– Exclusivity period of 12 years (perhaps less)
• Negotiation of drug prices?
Concluding Thoughts
“Forecasting drug spending growth is very difficult
because changes in year-to-year growth are
typically driven by extraordinary events where, for
example, drugs in certain classes get pulled from
the market and so utilization for the entire class
falls off a cliff.”
Ernst Berndt
MIT
January 2009
Compared to recent years, growth in
future drug prices will be …
HIGHER
• “For the next 3 to 5 years, I do not see
any changes to the current pattern of
brand-name drug price inflation of around
8 percent per year. Companies respond to
their shareholders first; therefore, they
are not swayed by increases in public
pressure to slow price growth.” Steve
Schondelmeyer, U. of Minn, October 2008
LOWER
• Increases in the transparency of drug
prices will force brand-name drug
manufacturers to limit annual price
increases of their drugs
• Health plans and prescription benefit
managers are becoming more
sophisticated and better negotiators.
Compared to recent years, growth in
future drug utilization will be …
HIGHER
• “From 2009 to 2011, I see growth in
utilization of at least 3 percent, perhaps
more, due to the aging of the population
and physicians continuing to begin drug
therapy for their patients earlier than in
past years.” Laura Miller, Nat’l Assoc of
Chain Drug Stores, Nov 2008
• Comparative effectiveness research
could lead to increased diagnosis of
chronic conditions and increased
compliance
LOWER
• Sluggish economic growth and the
impact of higher copayments for
prescription drugs will keep utilization
low and even more weighted toward
generic drugs
Future new drug approvals will be …
HIGH
LOW
• “The number of drugs pending FDA
approval, combined with those that
will be submitted in 2009, could mean
a rebound in new drug approvals.
Across all the drugs in the pipeline, an
average of 30 to 35 new drug
approvals is possible in each of the
next three years.” 2009 Medco Drug
Trend report, page 51
• “The existence of fewer, larger entities
with tighter research budgets may stifle or
limit innovation and the ongoing prospects
for improved therapeutics reaching the
market.” Aitken, Berndt and Cutler,
“Prescription Drug Spending Trends In The
United States: Looking Beyond The Turning
Point,” HA web exclusive, 16 Dec 2008,
page w158.
Discussion / Questions