Tuesday, February 13, 2018

New Express Scripts Data: The Drug Spending Slowdown Is Real

Last week, Express Scripts released its 2017 Drug Trend Report. (Free download.)  Consider it an early Valentine's Day present for pharma wonks like your friendly neighborhood blogger.

The latest data confirm the slowdown in drug spending. For 2017, drug spending increased by only 1.5% for Express Scripts’ commercial plan sponsors. What’s more, drug spending declined for nearly half of commercial payers. Medicare, Medicaid, and exchange plans also saw very modest increases. Below, I dive deep into the data on cost and utilization growth.

By now, there can be no debate that pharmacy benefit costs are growing more slowly than every other major part of the healthcare system. Yet the false narrative that drug spending is “out of control” persists.

Based on exclusive data that Express Scripts shared with me, most people paid relatively little in out-of-pocket costs for their prescriptions. But some people spent a lot. I’m sure many patients would gladly say “be mine” to benefit designs that share the discounts being absorbed by employers and insurers.


The new Express Scripts report deconstructs the year-over-year change in drug spending into its two primary components: price and quantity. It defines these components as follows:
  • Change in unit cost—the rate of change in costs due to inflation, discounts, drug mix, and member cost share. Costs are net of rebates received by plans, so they reflect net (not list) prices.
  • Change in utilization—the rate of change in total days’ supply of medication per member, across prescriptions.
It is crucial to distinguish between these two effects. The public debate—and unfortunately, many journalists—focuses only on list prices. That's very misleading. Growth in spending comprises both prescription utilization and the net, post-rebate cost of drugs. Understanding the mix of cost and quantity is crucial to understanding what drives drug spending.

Express Scripts based its figures on de-identified prescription drug use data from 34.3 million people.


The chart below summarizes the results for four different types of third-party payers: commercial, Medicare, Medicaid, and health insurance exchanges. For each payer type, the sum of the change in unit cost and the change in utilization corresponds to the change in drug spending.

As you can see, all payer types experienced extremely low growth in pharmacy benefit spending. Overall utilization growth was low, while unit costs grew modestly or declined.

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These topline data reaffirm the slowdown that I have highlighted in recentDrug Channels articles:


The charts below summarize the traditional (non-specialty) and specialty drug components for unit costs and utilization. As you can see, costs for traditional drugs declined, due largely to generic substitution in the blood cholesterol class and pricing pressures for insulins. Costs for specialty drugs increased modestly, especially for commercial and Medicare.

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The Express Scripts information disproves the notion that specialty drug costs are the problem.

For specialty drugs paid by commercial and Medicare plans, growth in utilization was a bigger factor in spending growth than were costs. (Compare the chart above to the chart below.) For example, specialty unit costs grew by 3.2% for commercial payers, while utilization grew by 8.1%. In other words, spending increased because more people were treated and more prescriptions were dispensed. That’s not a drug price problem.

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Hepatitis C drugs were a notable exception to the utilization increase. For 2017, spending on these therapies declined by 31.2%, following a 34% decline in 2016. The 2017 figure was comprised of a 40.4% decline in utilization and a 9.2% increase in costs. Consequently, hepatitis C products have dropped from 4.2% of total commercial spending in 2015 to 1.6% of spending in 2017.


Commercial plans have greater flexibility to adopt more aggressive utilization management tools. A plan that permits greater use of utilization management tools will generally have slower growth in drug spending.

Express Scripts reported that drug spending growth in 2017 declined by 1.2% when its plan used three “PBM solutions,” compared with a 3.3% increase for plans that used only one solution. The solutions highlighted were: Express Scripts SafeGuardRx® programs; exclusive specialty pharmacy via Accredo; and use of the National Preferred Formulary.

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Regardless of how you feel about PBMs, those are astounding results.


Express Scripts noted that beneficiaries were responsible for 14.3% of total prescription costs in 2017. That figure is consistent with our analysis of the National Health Expenditure data.

However, that overall average disguises today’s troubling bifurcation in patients' out-of-pocket costs, which are based on benefit design, diagnosis, and drug therapy.

Some people take inexpensive generic drugs, have generous benefit plans with fixed-dollar copayments, and can utilize copayment offset programs access. Other people end up with very high out-of-pocket expenses due to coinsurance and deductibles. This shift has been especially pronounced for specialty drugs, where four and five tier benefit designs now dominate.

Consider high-deductible health plans (HDHP). According to Express Scripts, 18.9% of its commercial lives were enrolled in an HDHP. In 2018, many patients will be faced with copay accumulators, the latest patient-unfriendly benefit design.

Express Scripts was kind enough to share the following data about total out-of-pocket expenses for prescription drugs in 2017:*
  • 78.2% of patients had total out-of-pocket expenses that were less than $250
  • 15.5% of patients had total out-of-pocket expenses that were between $250 and $1,000
  • 6.3% had total out-of-pocket expenses that were greater than $1,000
It’s the third group that is problematic.

In Employers Are Getting More Rebates Than Ever—But Sharing Little With Their Employees, I describe how employers are hoarding rebates negotiated by PBMs. Employers are not sharing the savings with the employees whose prescriptions generated those rebate funds.

It also means that some patients may not be benefiting from slow growth in drug spending. Perhaps plan sponsors should follow their heart and not just follow the dollar.

* These figures are computed based only on patients that utilized prescription drugs in 2017.

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