Rising drug spending due to more than just price hikes

U.S. prescription drug spending has been growing, following a period of relatively slow spending growth that ended when drug spend grew 12.6% in 2014. Since then, growth in spending has accelerated — and will continue to increase at similarly high rates — according to a new issue brief from the Department of Health and Human Services.

Using estimates based on numbers from the National Health Expenditure Accounts and data from IMS Health’s National Prescription Audit, the brief examines the various factors and trends that brought retail prescription drug spending to $328 billion, comprising about 12% of the $2.73 billion in healthcare spending in the United states in 2015. In 2016, HHS projects that $343 billion will go to retail prescription drugs, with non-retail drug spend adding $134 billion, which taken together constitute 16.7% of the year’s healthcare spending. The NHEA numbers also suggest an average annual growth rate of 4.5% between 2010 and 2014.

The IMS data used estimates similar to, if slightly higher than, the one from the NHEA (HHS attributes the difference to IMS using gross price figures, rather than data based on net price of drugs after applying adjustments for rebates). According to the NPA, drug spending went from $261.2 billion in 2010 to $329.9 billion in 2014 — the most recent year for which IMS had full-year data. The average growth rate from IMS was 6% — higher than that from the NHEA estimates.

But spending is just one piece of the puzzle, and IMS data also illuminated big changes taking place in terms of the number of prescriptions dispensed through retail channels. During the same four-year period between 2010 and 2014, the number of retail prescriptions rose from 3.54 billion to 3.92 billion.

“Nearly three-quarters of that rise resulted from growth in the number of prescriptions per capita, with the remaining portion attributable to the growing U.S. population,” the brief said, also noting, “expenditures grew more quickly, rising about 26% during that same period.”

The rise in expenditures can’t be entirely attributed to a growing population or more prescriptions per person, the brief pointed out. It noted that price changes, either from inflation or increased prices, caused a 15% increase in drug spend during the last five years, with inflation contributing 7% to that growth.

“Economy-wide inflation rose by only about 7% from 2010 to 2014, so roughly half of the rise in average drug prices during that period represents growth in excess of overall inflation,” according to the brief.

Much of the growth in spending on prescription drugs also can be attributed to higher prices from branded drugs. The brief pointed out that prescriptions of branded drugs dropped by 42% between 2009 and 2015, but ended with 13% higher revenue than at the beginning of that period.

Among the notable differences between branded drugs and generics was a 36% rise in the number of generic prescriptions, accompanied by more than doubled expenditures over the five-year period.

On the other side of the cost coin, the issue brief also highlighted the role specialty has played in increased spending. ASPE estimates showed that between 2009 and 2015, specialty spending went from $14.5 billion to $27.1 billion — an 86.9% increase, with an average annual growth of 11%. IMS data for the period between 2010 and 2014 saw spending go from $15 billion to $23 billion, with an annual growth rate of 11.2%. Additionally, IMS said that in 2014, specialty spending was 7.6% of all retail drug spending — up from 5.7% in 2010.

“Expenditures on specialty drugs appear to be rising more rapidly than expenditures on other drug products, though estimates of the level of spending on specialty drugs and the net contribution to overall spending growth are highly sensitive to which drugs are considered to be ‘specialty drug’ products,” the HHS report stated.

Essentially, the big focus for federal agencies moving forward will be trying to provide patient access to innovative medication,  according to the report, while trying not to reach too far into the government’s or the consumers’ pockets.

“Many new drug products confer enormous clinical benefits to patients, but the cost associated with some of these therapies may place a financial strain on patients who might face high out-of-pocket costs even if they are insured,” the HHS report said. “In addition, spending on prescription drugs contributes to overall healthcare spending growth and creates pressure on this portion of federal and state budgets.”