Prescription Drugs Spending Distribution and Cost Drivers

1
Prescription Drugs Spending Distribution and
Cost Drivers

• Steve Kappel
• January 25, 2007

2
Introduction Why Focus on Drugs?

• Compared to other health care spending
• Even faster annual growth
• Higher reliance on out-of-pocket spending
• Some health insurance doesnt cover drugs
• High cost-sharing requirements
• Caps and other benefit maximums
• Uninsured

3
Sources of Numbers

• Vermont-specific
• Department of Banking, Insurance, Securities and
  Health Care Administration
• National
• Total spending figures from Office of the
  Actuary, CMS
• Detailed information from Medical Expenditure
  Panel Survey (MEPS) conducted by the federal
  Agency for Healthcare Research and Quality (AHRQ)

4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
(No Transcript)
9
Drug Spending in the US Population

• 64.4 percent have expense (2003)
• Mean 611, median 62
• Top 10 64.2 percent of all spending
• Top 30 93.6 percent of all spending
• Bottom 50 0.7 percent of all spending

10
Top-Selling Drugs

• In 2004, the top 10 drugs (based on total
  spending) accounted for 19.2 of all drug
  spending in the US
• Lipitor has been the top seller since 2000.
  Spending on this drug nearly tripled from 2000 to
  2004.

11
(No Transcript)
12
Brand and Generic

• Between 1999 and 2003 spending on brand name
  drugs rose from 75.5 billion to 141 billion
  (88).
• In the same period, generic spending rose form
  18.8 to 36.6 billion (95).
• Generic share increased slightly, from 24.9 to
  26.

13
COX-2 Inhibitors

• New type of analgesic, reportedly fewer GI
  complications, introduced in 1998
• 1997 total spending on NSAIDs was 3.2 billion
• 2003 NSAIDs other than COX-2 had fallen
  slightly, to 3 billion (constant dollars).
  COX-2 spending was 5.5 billion
• Proportion of people using other NSAIDs fell from
  10.9 to 8.2, COX-2 users 4.7

14
Health Care Cost Drivers

• Prices the amount paid for the same product
  over time
• Utilization the quantity of product purchased
• Intensity the mix of different products
  purchased
• Include new drugs here or separate?

15
Relative Contribution of Drivers

• Several studies have looked at this, with similar
  results
• Express Scripts does an annual Drug Trend
  Report the 2005 version was released in June
  of 2006
• Different way of measuring drivers

16
Source Express Scripts, 2005 Drug Trend
Report, Exhibit 19
17
A Closer Look at Prices

• Tremendous variation
• U.S. and other countries
• Brand prices are usually higher in the U.S.
• Generic prices are usually lower in the U.S.
• Among payers in the U.S.
• The lowest prices are usually paid by the V.A.,
  about 45 of list price
• Medicaid pays an estimated 60 of list price
• PBMs pay an estimated 80

18
The Pharmaceutical Supply Chain
Manufacturers
Wholesalers

• Retail Pharmacies
• Chain
• Independent
• Mail-order

• Non-Retail Providers
• Hospitals
• HMOs
• Nursing Homes

Consumers
Source CBO
19
Three Key Price Measures -1

• Average Manufacturer Price
• Average price paid by wholesalers or retailers
  who purchase directly from manufacturers
• Real number
• Reported to CMS, used to calculate Medicaid
  rebates
• Value of rebates is excluded

20
Three Key Price Measures - 2

• Wholesale Acquisition Cost (WAC)
• Manufacturers publicized list price
• Probably closest to the price wholesalers charge
  retailers

21
Three Key Price Measures - 3

• Average Wholesale Price (AWP)
• Published average list price paid by retailers
  who purchase from wholesalers
• Frequently used by Medicaid programs to calculate
  brand drug reimbursement
• Vermont pays AWP minus 11.9 plus a dispensing
  fee
• Most closely approximates retail price

22
Rebates

• Basic idea sell at a lower price, without
  lowering prices (just like cars)
• Medicaid
• Rebates guarantee that Medicaid will get the same
  price for each drug as the lowest price charged
  to any private purchaser.
• Calculation by CMS, no public information

23
Rebates

• Some Medicaid programs, including Vermont, have
  used preferred drug lists to negotiate
  supplemental rebates from manufacturers. These
  rebates are based on the ability of PDLs to move
  substantial volume from one manufacturer to
  another.

24
Rebates PBMs

• Pharmacy Benefit Managers (PBMs) also rely on
  rebates from manufacturers
• Concerns that PBMs do not always pass the full
  value of rebates onto their customers

25
Tomorrow

• Approaches to controlling pharmacy spending
• Evaluation of the effect of those approaches

26
Questions?