Happy birthday Medicare and Medicaid! Fifty years old today. Middle age. Congratulations. You’ve survived a lot—and 76 million baby boomers and 60 million low-income Americans are mighty glad you’re still around, covering one in three Americans, with solvency until 2030 at last accounting.
Unfortunately, the challenges are not going to let up. In fact, they’re likely to get worse. Those challenges are discussed at length in several places that celebrate this milestone—most notably here, here, here, in the current issue of the Journal of the American Medical Association (subscription required for access to full articles); and in an Oxford Press book of 16 essays.
This piece focuses on one of the biggest challenges facing both programs: the increasing number of very expensive specialty drugs.
These are medicines made primary through bioengineering. They are often referred to as biologics. THCB readers will no doubt have heard of the hepatitis C drug Sovaldi, the current poster child of expensive drugs at $84,000 for a 12-week course of treatment. More generally, specialty drug prices range from $2,000 to $10,000 a month. One source pegs the average price at around $36,000 a year.
When there were just a few biologics, it was not a big problem. But now there are a couple dozen. Some treat rare diseases that afflict a small number of people, but an increasing number target cancer, multiple sclerosis, rheumatoid arthritis, immune system disorders, and even heart disease.
Specialty drugs accounted for 30% ($112 billion) of the $374 billion spent on prescription drugs in 2014, and they drove the bulk of the 13% increase in drug spending that year over 2013, according to IMS Institute for Healthcare Informatics. That leap in drug spending contrasted with low single digit increases for the previous few years.
Medicare (via Part D, Part B and Medicare Advantage) pays 25% to 30% of the nation’s prescription drug tab each year. And somewhere around 16% of Medicare’s budget is spent on prescription medicines—about $90 billion in 2014. Consistent with IMS’s finding for drug expenditure overall, Medicare Rx drug spending leapt 12.6% from 2013 to 2014, the fastest rise in years and up from a 2.5% increase in 2013 over 2012, according to a CMS report out this week.
Solvaldi alone cost Medicare some $4.5 billion in 2014—becoming the single most expensive drug Medicare enrollees received.
While Medicaid spends less proportionately on Rx drugs, the specialty drugs are having an impact. In 2012, they accounted for 28% of Medicaid drug spending even as they represented just 2% of prescriptions. Preliminary data from ProPublica indicates that Solvaldi and one other hepatitis C drug were on track to cost states an aggregate $2 billion or more this year.
Express Scripts, the huge pharmacy benefit management firm, sliced its 2014 data to calculate drug cost growth nationally. Due almost solely to specialty drugs, the estimated number of Americans with drug costs exceeding $50,000 increased 63% in 2014, from 352,000 to 576,000, the company estimated.
That the trend to more pricey drugs will continue is not in question. More biologics are being approved every year, and according to a 2013 industry report some 900 are in the pipeline, with many nearing submission to FDA for approval. By some estimates, specialty drugs could comprise over 50 percent of all drug spending by 2020. Beyond that is anyone’s guess. At this week’s release of the CMS report on health spending between now and 2024, Sean Keehan, a CMS economist, said drug spending was now the “largest area of uncertainty” in CMS’s projections.
The big question, of course, is: are these pricey medicines worth the cost? Do they yield good value? Are they fairly priced? Or are drug companies profiteering? And, if specialty drugs are going to remain very expensive, how are we possibly going to afford them? A simple back of the envelope calculation suggests that just 10 more Sovaldis over the next 6 to 8 years could run up a tab in excess of $50 billion a year by the eighth year (if each drug is priced around $50,000 and taken by 100,000 people).
Let me anticipate comments from drug companies. Yes, there’s emerging evidence that Sovaldi may indeed be worth the cost when prescribed to the right people. It is more or less a cure (for about 90% who get it), and far better than previous hepatitis C drugs. It thus prevents liver failure and other dire consequences of hepatitis C, and many hospitalizations. And patients have much better quality of life. In short, it looks every bit like a wonder drug, so far—the kind we ought to be applauding when it comes to market.
Unfortunately the same can’t be said of many other specialty drugs, and especially those to treat cancer. There’s not the space here to get into this at length, and it’s a complex discussion that involves tough ethical issues, clinical judgments, patient preferences, and contradictory evidence. Suffice it to say that evidence grows steadily that too many new cancer drugs priced at $50,000 to $150,000 a year are buying most patients only a few extra months of life, on average, and those may not be months with good quality of life.
Concern and even outrage is growing. That emanated most pointedly this month from a group of 118 cancer doctors. In a brief commentary in the journal Mayo Clinic Proceedings, the physicians call for immediate steps to lower the price of cancer drugs, the average price of which they say has increased five-fold or more over the past 15 years to over $100,000 a year in 2012. The physicians avoid directly offending drug companies, but state the following:
“Drug companies keep challenging the market with even higher prices. This raises the question of whether current pricing of cancer drugs is based on reasonable expectation of return on investment or whether it is based on what prices the market can bear.”
They also note that the structure of both private insurance benefits and Medicare mean some cancer patients needing a $120,000 drug can be saddled with out-of-pocket costs as high as $30,000. While that level of expense is relatively rare, it’s common for people needing expensive drugs to bust through both their deductible ($1,000 to $3,000) and hit their health plan’s out-of-pocket maximum (as much as $6,000 for family coverage). For middle-income families, that’s untenable.
Employers, insurers, and states share the cancer doctors’ concern. Employers and insurers are re-evaluating their drug coverage, with pressure from unions, consumer groups and others to separately cap out-of-pocket costs for specialty drugs. Some of the ACA healthcare exchanges are also taking a close look at the problem. One, in California, has already set an out-of-pocket cap of $250 per prescription per month.
State lawmakers are taking action, too, or are poised to. Seven states (Delaware, Louisiana, Maine, Maryland, Montana, New York, and Vermont) now limit out-of-pocket payments for people in private health plans under state jurisdiction (which does not apply to large employer plans)—generally to between $100 to $250 a month. In other states (California, Massachusetts, and North Carolina, Oregon, and Pennsylvania) lawmakers are debating whether to require drug companies to justify their prices with detailed filings.
As laudatory as such efforts are, a state-by-state approach is not a long-term solution. And it does nothing for Medicare beneficiaries. I end this piece with the cancer doctors’ recommendations (adapted and slightly elaborated). I concur with them.
(1) Permit Medicare to negotiate prices directly with drug companies, now explicitly barred by the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. As Medicare moves swiftly to pay providers based on the quality and value of their care, the same should hold for prescription drugs.
(2) Authorize the Patient-Centered Outcomes Research Institute (PCORI) to evaluate the benefits and value of new drug treatments, and include price in their assessments. That’s now blocked by a provision in the Affordable Care Act, which gave birth to PCORI; industry insisted on the provision. It’s time to repeal it.
(3) Allow people to import prescription drugs for personal use and give FDA the power to monitor the program and certify channels of purchase. An unenforced federal law blocks importation now. (I’d make this a pilot program for five years to immediately give consumers the option.)
(4) Pass legislation to prevent brand-name drug companies from delaying access to generic drugs—so-called pay-for-delay practices that permit brand-name companies to pay generic manufacturers to delay the introduction of lower-cost generics.
(5) Reform the patent system to make it more difficult for drug companies to prolong market exclusivity unnecessarily (patent “evergreening”) by slightly modifying existing drugs.
(6) Encourage organizations that represent cancer specialists and patients (e.g., the American Society of Clinical Oncology, American Society of Hematology, American Association for Cancer Research, American Cancer Society, National Comprehensive Cancer Network) to consider the overall value of drugs and treatments in formulating treatment guidelines.
I’d add two: (a) Enact legislation that would permit the FDA to speed the approval of biosimiliars, the copies of biologic drugs authorized by the Affordable Care Act; and (b) until Medicare is allowed to negotiate with companies, extend the mandated lower prices Medicaid pays (via rebates) to Medicare beneficiaries who get the low income subsidy.
The politics of all of the above is difficult to say the least. I hope it emerges as an issue in the 2016 elections. A Kaiser Family Foundation poll of 1,200 adults released last month found that three-quarters of Americans think prescription drugs costs are unreasonable, and they blame the drugs companies.
Steven Findlay is an independent journalist who covers medicine and healthcare policy and technology.
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