Surging price of branded drugs squeezing healthcare providers' bottom lines
The surging prices of branded drugs are driving double-digit annual growth in national pharmaceutical spending, squeezing the bottom lines across the healthcare industry, a new study found.
Prescription drug spending has increased 10% annually for Blue Cross and Blue Shield members since 2010, amounting to an overall rise of 73%, according to a Blue Cross and Blue Shield Association study published Wednesday.
A sharp increase in the price of a small fraction of new patented drugs is the main driver of annual growth in national pharmaceutical spending, even though more patients are using cheaper generic drugs, the study found. The trend is affecting consumers, providers and payers alike, all of whom have seen the price of patented drugs jump 18% every year since 2010. Although generic drug utilization is up 9%, prices have remained fairly flat.
"Ten percent price increases a year for drugs we use a lot really hit our budget," said Dr. Scott Knoer, chief pharmacy officer of Cleveland Clinic. "Margins are tightening across the board."
At times, the most effective treatment may be delayed or even denied due to coverage disputes over high-cost drugs, he said.
For example, the University of Utah Health Care system has guidelines to ensure that high cost drugs are being used appropriately, said Erin Fox, director of drug information at the university's drug information service. While it still has drugs available for emergencies, the health system has reduced inventory costs by removing several drugs from its crash carts, she said.
Branded drugs with no generic alternatives, or single-source drugs, are the main culprit, the study said. They are rising at an average annual rate of 25%, a total of 285% since 2010. These patent-protected drugs now make up 63% of total drug spending, up from 29% of total spending in 2010, despite the fact that they make up less than 10% of total prescriptions filled.
Spending on the drug Gilenya, used to treat multiple sclerosis, increased 30,257% over a seven-year period, according to the study, which examined the medical claims of more than 30 million Blue Cross and Blue Shield commercially insured members and more than $208 billion in prescription spending from January 2010 through September 2016.
"This rapid rise in drug trend costs is likely to continue in future years," said Maureen Sullivan, chief strategy and innovation officer for the Blue Cross and Blue Shield Association.
Drug prices often increase because there aren't enough manufacturers making alternatives. Specialty drugs such as Enbrel, Gilenya, Harvoni and Humira will not have low-cost generics enter the market anytime soon, the study said. It cited reasons including complex and complicated approval processes and patents that translate to difficult and expensive development as well as existing patents that are valid for five years or longer.
"It's not only because the drugs are expensive to make, these pharmaceutical companies are excellent litigators," said Knoer, adding that pharmaceutical companies have paid manufacturers not to develop generics. "They will fiercely litigate to protect and keep their patents."
In a related 2016 study sponsored by the American Hospital Association, 57% of hospital administrators reported that higher drug prices have had a moderate impact on their budgets, while 33.8% said the impact was severe. Hospitals have changed employee compensation models and delayed upgrades in facilities and technology due to increases in drug costs, the CEOs of the American Hospital Association and the Federation of American Hospitals said in another 2016 report.
Some say the federal government should do more to regulate prescription drug prices. Closer oversight of pharmacy benefit managers and banning direct-to-consumer and direct-to-physician promotion would also help, Knoer said. The pharmaceutical industry spent more than $24 billion to market directly to physicians in 2012 compared with $3 billion that year to consumers, according to a study published that year in the Pew Charitable Trusts.
There are several bills moving through Congress that aim to reduce drug costs. The CREATES Act and the bipartisan Fair Access for Safety and Timely Generics Act, or FAST Generics Act, target alleged anticompetitive behavior that stifles generic drug development. That alleged behavior includes preventing generic developers from accessing samples of branded products to demonstrate that a generic is equivalent and participating in blocking access to safety protocol needed to gain FDA approval. The FAST Generics Act is estimated to save $5.4 billion a year in reduced drug costs.
Drugmakers would have to justify price hikes of at least 10% in a bipartisan bill called the Fair Drug Pricing Act.
In addition, the bipartisan Preserve Access to Affordable Generics Act, would ban brand-name manufacturers from using so-called pay-for-delay agreements to keep competing generic products off the market.
The likelihood that Congress will pass those bills is small. The pharmaceutical industry heavily lobbies Congress in an effort to secure their profit margins.
There have also been several related high-profile lawsuits. Following the drastic price increase of Mylan's EpiPen, Mylan has been accused of allegedly offering illegal rebates to third-party payers that squeezed out the competition and orchestrated a racketeering sales scheme with pharmacy benefit managers that amounted to illegal kickbacks, two lawsuits claimed.
"Drug price increases have had a huge impact," Knoer said.
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