by Dr. Franco Mueller, MD Partner/Medical Director, TFG Partners
According to a recent article in the New York Times by Katie Thomas on April 27, 2016, drug costs rose about 12% in 2016. However, according to research firm IMS Health, net prices — what insurers and employers actually paid — grew only about 2.8%, the lowest rate in years. The article points out that insurers and others say that lower figure obscures the larger price increases in specific areas like cancer treatment, where less competition exists and it is more difficult to pit manufacturers against one another. Indeed, drug makers do profit from raising their list prices because rebates and discounts are often based on a percentage of those prices. The article then quotes Steve Miller, chief medical officer of Express Scripts “That’s where the real angst in the marketplace is.”
Chief financial officers, responsible for budgeting and paying for employee drug benefits, and human resource managers, responsible for designing the benefits, will ask: “How this difference between 12% and 2.8% is possible? How are these price increases measured?” When looking at total drug benefit costs companies are paying for employees, the 2015 increase is certainly greater than 2014’s 10% even when factoring in rebates.
Across our book of business where we have audited the 2015 prescription drug program and pricing implementation (10 groups as of publishing), the total drug spend increased by more than 14%, the number of prescriptions rose by 4.9% and the days of treatment supplied per script increased by 1.2%. Given our data, the 2.8% increase that IMS Health quotes is difficult to interpret. This is further complicated by the lack of clarity as to the way this number was derived.
Here is what we have learned so far comparing drug costs from 2014 and 2015:
- Accounting for New and Discontinued Products —Each year there are a number of drugs that are discontinued and new products and NDC codes (each drug approved in the US has a code, the NDC number) that enter the market. The IMS Health percentage does not disclose how new and discontinued products (NDCs) have been assessed. Of the 2,484 unique products dispensed in both years in 10 companies, 688 were only dispensed in 2014, 866 in 2015 and 1,767 in both years.
Overall Pricing Increases —The total AWP (Average Wholesale Price) cost for all the 10 companies increased from $94.5 million to $107.6 million or 14%. Products dispensed in both years accounted for 50% of the $13.1 million AWP increase, while the discontinued products saved $4.9 million in 2014 AWP drug costs but new products added $11.4 million in costs.In the 1,767 prescriptions dispensed in both years generated an AWP cost increase of $6.6 million, the median AWP Unit price was $4.04 in 2014 and rose to $4.45, a 10% increase across all drug types (Branded and Generics) and dispensing channels (Retail, Mail, Specialty).
Generic Drug Pricing Increases — For the 885 Generic products dispensed in both years, the median AWP Unit price increased from $1.96 in 2014 to $2.14 or +9% in 2015, contributing to 53% of the $6.6 million in AWP increased costs. There were 281 generic products accounting for 23% of all generics filled in 2015 for which the AWP Unit price increased by more than 10%. Of these, in 47 generic products and 12,636 prescriptions, the AWP Unit price increased by more than 100%. These 47 products accounted for 44% of the total generic AWP cost increase. For example, while in drug plans administered by pharmacy benefit managers generic discounts off AWP might increased from 78.5% off AWP to 79%, the generic AWP Unit cost increases of 9% and more will wipe out these savings.
Branded Drug Price Increases —AWP Unit price increases for branded products were even more pronounced in 2015. For the 915 Branded products dispensed in both years, the median AWP Unit price increased from $6.15 in 2014 to $7.12 or +15.8% in 2015, contributing to 47% of the $6.6 million in AWP increased costs. As with generics, in 472 of 915 (52%) branded products filled in 2015 for which the AWP Unit price increased by more than 10%. These AWP Unit price increases are wiping out any deeper discounts offered from one year to another that can range as much as 1-2 % but more likely are in the 0.5 -1.0% range for branded products. Furthermore, these discounts often exclude many products, such generics with only one or two manufacturers, limited supplies, compounded drugs and others.
Based on our initial experience in auditing 2015 drug prices, we have a hard time to see the relevance of the 2.8% net price increase number provided by IMS Health, particularly if provided without any description of what is included or excluded to derive such a number. Note also that IMS Health’s customers are mostly pharmaceutical manufacturers.
For anybody who has to budget and pay for employee prescription drug cost, the 2.8% net price increase number is therefore meaningless. We also cannot confirm that these increases apply only to increases “in specific areas like cancer treatment, where less competition exists and it is more difficult to pit manufacturers against one another”, rather in our sample of 10 companies, we see increases across the board in most therapeutic classes. Assessing AWP Unit price increases in 31 different therapeutic classes, the median increase by class for 2015 was 12.7%. There were only 4 therapeutic drug classes with increases of less than 5% and one (1) class showed a decrease in median unit prices. Looking at these numbers, one gets the feeling as if the manufacturers’ attitude is to increase the prices as high as possible and as long as they can.
We are aware that numbers we present are based on only 500,000 prescriptions, therefore, a low sample size, but as we continue auditing prescription drug benefits and pricing and learn more, we will update our findings and make corrections if necessary. Employer beware, even as IMS reported a 8.5% increase in medicine spending , we believe budgeting for single digit increases for your drug spend may be ill advised.