Monday, February 24, 2020

Latest Express Scripts Data: Slow Drug Spending Growth—And Big Plan Savings from Manufacturer Copay Programs

Last week, Cigna’s Express Scripts business released its 2019 Drug Trend Report. The results are presented as a webpage, so there’s no download this year. (For 2021, I presume it will delivered via TikTok.)

Contrary what you hear from our politicians, we again see that drug spending is not skyrocketing.

For commercial plan sponsors, pharmacy benefit spending grew by only 2.3%. The majority of spending growth was due the growth in the number of people being treated and the number of prescriptions being dispensed—not to increases in the net, post-rebate costs of the drugs.

Express Scripts also disclosed some startling savings from SaveonSP, an offering run by a secretive private company. As I explain below, SaveonSP declares specialty drugs to be “non-essential health benefits” and then extracts funds from manufacturers’ copay programs to pay for the drugs anyway. Is SaveonSP saving money, or merely exploiting a loophole by diverting funds that manufacturers provide for patient support?

SLOW AND STEADY

For Express Scripts’ commercial plan sponsor clients, the overall weighted average increase in spending for 2019 was only 2.3%. Spending on specialty drugs grew by 11.6%, while spending on traditional drugs dropped by -5.0%.

The chart below tracks trends for Express Script’s commercial clients for the past six years. In 2014, spending spiked upwards due to new drugs that treated hepatitis C. Since then, a major slowdown has occurred in commercial drug spending growth.

[Click to Enlarge]

A few comments on these data:
  • Drug costs are reported net of rebates received by plans, so they reflect net (not list) prices paid by third-party payers. Note that the cost figures include (1) retail and mail pharmacy dispensing margins, and (2) any PBM retail network spreads.
  • These data highlight an important reality of PBMs for plan sponsors: Net plan spending on pharmacy benefit drugs has been growing more slowly than spending on other healthcare services.
USE > PRICES

Year-over-year changes in drug spending have two primary components:
  • Unit costs—the payer’s cost per unit of therapy. Unit costs vary with:
    • The rate of inflation in net, post-rebate drug prices
    • Shifts to different drug options within a therapeutic class
    • A shift in mix of therapeutic classes utilized by beneficiaries
    • The substitution of generic drugs for brand-name drugs
  • Utilization—the total quantity of drugs obtained by a payer’s beneficiaries. Utilization varies with:
    • The number of people on drug therapy
    • The degree to which they adhere to their drug therapy
    • The average number of days of treatment.
The total change in spending equals the sum of changes in unit cost and changes in utilization. Understanding this mix of cost and quantity is crucial to understanding what drives drug spending. Unfortunately, many journalists and politicians conflate the two effects.

Express Scripts provided me with the underlying data that deconstructs the change in drug spending into these two primary components. (Oddly, this year’s published report did not include these data.) As you can see below, growth in utilization exceeded growth in costs for both traditional and specialty drugs.

[Click to Enlarge]

For Express Scripts’ commercial clients, for instance, the 7.2% increase in specialty drug utilization accounted for more than 60% of the 11.6% increase in specialty drug spending. Utilization growth can be considered a positive trend, because it is well established that pharmaceutical spending reduces medical spending and improves patients’ health.

Translation: It's not just prices.

Note that these data do not imply that net costs for all specialty drugs grew slowly or declined. Express Scripts provided more detailed information about trend by therapeutic category. (These data appear in the Trend overview by plan type section of its report and can be viewed by clicking the “Show table” button.) For example, inflammatory conditions and oncology both experienced a double-digit increase in trend, driven by unit costs. Those two categories accounted for less than 1% of adjusted prescriptions but 28% of spending.

I'll have a deep dive on drug spending and pharmacy revenues in our forthcoming 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

BLOGSPLAINING SAVEONSP

Express Scripts reports that specialty trend was -5.2% for plans in its SaveonSP specialty patient assistance solution vs. +12.3% for nonparticipating plans. That's a surprisingly large 17.5% gap.

There is limited public information on SaveonSP. It's a secretive private company with an amazingly uninformative webpage. Huh?

Here’s how SaveonSP works (I think):
  • Copayments for these drugs are set equal to the maximum annual value of a manufacturer's copayment program. This amount is applied evenly throughout the benefit year, i.e., the total dollar value of the program is divided by 12. For instance, a program with a total value of $20,000 in copayment support would equate to a monthly copayment of $1,666.

    Note that the copayment is not based on the list or net price of the drug. It appears to be determined solely based upon the amount of manufacturer-funded copay assistance.
  • To avoid these costs, the plans' beneficiaries must enroll in SaveonSP. A patient’s actual out-of-pocket costs are $0, so they never reach any annual deductible and out-of-pocket maximum based on these drugs. The value of the manufacturer’s copayment support does not count toward the patient’s deductible and out-of-pocket maximums.

    SaveonSP therefore has elements of a copay maximizer program, which I discuss and model in Copay Accumulator Update: Widespread Adoption As Manufacturers and Maximizers Limit Patient Impact. Using some fairly conservative assumptions, I show that the manufacturer retains only about 40% of the list price, before paying any other channel discounts. It pays roughly 60% of the costs of its drugs through a combination of rebates and copay support.
  • Prescriptions are filled exclusively from Express Scripts’ Accredo specialty pharmacy, which earns its usual pharmacy dispensing margins from these prescriptions.
Is this chicanery OK?

SaveonSP clearly exploits a loophole in the way manufacturers provide funds for patient support. Money that is designated to support underinsured patients or those with coinsurance are instead diverted to well-funded employer-sponsored plans. Consider what would happen if plans declared common hospital and physician services to be "non-essential" and thereby forced providers to subsidize a health plan's spending from their reserves.

This program also relies on manufacturer program levels to determine the copay amount. But if a manufacturer reduces the maximum copay support amount or if SaveonSP gets its figures wrong, the patient would be liable for payment—even after being told they would have $0 responsibility.

Keep an eye on SaveonSP. It may look harmless, but seems highly questionable to me.

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