Tuesday, August 02, 2011

CMS' Bright Future for Drug Spending in 2020

The boffins at the Centers for Medicare and Medicaid Services (CMS) just released their new, post-health care reform forecasts for national health expenditures (NHE). You can read the full Health Affairs article here: National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth (free download).

My number crunching highlights the good news for the pharmacy and pharmaceutical industries:
  • Annual prescription drug expenditures will double in the next 10 years to $512.6 billion by 2020.
  • Drug spending growth will grow at a compound average rate of 7.1% from 2010 to 2020—faster than overall health expenditures. As a result, prescription drug spending is projected to be 11.1% of NHE vs. 10.1% today.
  • Health care reform will add an extra $35.2 billion in annual drug spending by 2020.
Despite the near-term patent loss gloom, CMS provides plenty of reasons to be cheerful about the future of the pharmaceutical industry, even if you don't study nuclear science and love your classes.

Tomorrow, I’ll look at the surprising changes in payer mix buried in the CMS data.


You can download all forecast data and methodology from CMS’ National Health Expenditure Data Projections page.

These forecasts include the impact of the Patient Protection and Affordable Care Act (PPACA), which is why CMS published its forecasts later than usual. CMS has told me that they expect to get back on the February publication schedule in 2012.

Important stuff you should know:
  • Expenditure (spending) data is not the same as pharmacy revenues, manufacturer sales, or provider purchases. NHE totals are net of manufacturer rebates, so the reported figures are lower than prescription sales of retail pharmacies. See my explanation at the bottom of Who Paid for Prescription Drugs in 2009?

  • These data do NOT measure total U.S. spending on prescription drugs. Sales through outpatient retail channels are only about 75% of total pharmaceutical manufacturer sales. For example, some portion of "Hospital care" (and other NHE categories) also include an unknown amount of drug spending.

CMS helpfully computed the latest forecasts both with and without the effect of the PPACA. As you can in the chart below, drug spending is now projected to be $35.2 billion (+7.3%) higher in 2020 than it would have been without health care reform.

There are two key factors behind the increase.

1) PPACA will expand access to insurance coverage in 2014, mainly through Medicaid and the new state health exchanges. Health care spending will spike in 2014 across the board, as this chart from the Health Affairs article shows. Prescription drug spending growth is projected to be 10.7% in 2014 versus only 5.5% without the PPACA.

2) The increase in insurance coverage will coincide with the specialty pharmaceutical boom illustrated in Top Ten Drugs of 2016. Here’s what CMS had to say:
“From 2015 through 2020, prescription drug spending growth is expected to average 7.2 percent. This reflects, in part, a projected leveling off of the dispensing rate for generic drugs, resulting in slightly higher drug price growth, and higher spending for new drugs due to an expected increase in the Food and Drug Administration’s approvals for new molecular entities and therapeutic biologics during this period.”
FYI, the citation for this paragraph is Medco’s 2011 Drug Trend report.


In dual honor of the upbeat forecast from CMS and the 30th anniversary of MTV, allow me to present immortal one-hit wonders Timbuk 3. Crank it up to 11 if you love the '80s!

Click here if you can't see the video.

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