No End in Sight for Escalating Prescription Drug Spending


Prescription drug costs are rising more than 10% a year, which is twice the rate of medical costs increases according to an A.M. Best report. Retail prescription drug spending grew 12.2% in 2014 compared to 2.4% in 2013. Driving the rising costs are increased spending for new medications, such as specialty drugs for Hepatitis C; patents that expired, price increases for brand name drugs, and higher health plan enrollment due to the Affordable Care Act (ACA). Drug spending from private health insurance, Medicare, and Medicaid accelerated in 2014. These costs have affected insurers. Also consumers are paying more out-of-pocket costs.

The increase in drug costs has become divergent to other health care costs. In 2014, U.S. health care spending increased 5.3% to reach $9,523 per person. The cost growth was primarily due to major coverage expansion under the ACA, particularly for Medicaid and private health insurance. The share of the economy devoted to health care spending in 2014 was 18.1%, up from 17.5% in 2013.

The medical loss ratio (MLR) remained relatively flat from 2010 through 2013 in the low 80 percentages before a decline in the past two years to around 75%. But the MLR was more than 10 basis points higher in 2010 to 2015 when prescription drugs were included.

Medicare Rights Center Supports Part B Drug Payment Model

Medicare Rights Center president Joe Baker testified in support of the CMS proposal to test new ways to pay for prescription drugs under Medicare Part B. He addressed a hearing held by the Subcommittee on Health of the U.S. House Committee on Energy and Commerce. The following is a summary of his comments:

Calls to withdraw the Part B Drug Payment Model fail to acknowledge…unrelenting beneficiary access challenges under the payment system. We applaud CMS for proposing to test solutions could alleviate calamitous cost burdens that cause too many older adults and people with disabilities to forgo necessary care. We urge members of Congress to support and strengthen the proposal by recommending improvements that put patients at the center of the payment model…Challenges affording health care affect nearly one in five callers on the Medicare Rights Center’s helpline. Sky-high cost sharing for Part B prescription drugs is a notable concern, most often for cancer and immunosuppressant medications. People with Medicare and taxpayers deserve a Medicare program that pays for high-value, innovative health care. The Part B Drug Payment Model presents an important opportunity to ensure that the Medicare program meets this high bar. 

Most Doctors Report Cancer Drug Shortages

As many as 98.9% of physicians recently reported cancer drug shortages, according to the Community Oncology Alliance (COA). The surveyed physicians said that, because of drug shortages, the cancer progressed faster in more than 60% of patients and more than 70% of patients had more severe side effects.

Almost half saw more than one patient per day affected by a drug shortage and 58% say the shortage in cancer care drugs is increasing. Over 80% of the patients and over 90% of the practices affected by a cancer drug shortage also experienced a more severe financial burden.

The root cause of the drug shortage is economic, said Ted Okon, executive director of COA. Medicare’s system for reimbursing cancer drugs has created pricing instability. That has resulted in disincentives for manufactures to produce these low-cost but vital generic cancer drugs and invest in manufacturing facilities for these products.

In addition to issues of optimal treatment, drug substitutions made because of a shortage often result in patients facing significantly higher costs. When treating ovarian cancer, a commonly used drug is Leucovorin. The cost to Medicare is $35 per dose; the patient co-payment is $9. But Leucovrin is a generic drug and in short supply, says Dr. Patrick Cobb, an oncologist at the Frontier Cancer Centers and Blood Institute, Billings, Montana, and COA past president. The substitute is a branded drug that is readily available. The cost to Medicare for a dose of the branded drug is $2,000 and the cost to the patient is $520. “This is an unacceptable consequence of the drug shortage crisis,” he said. The complete survey results and comments from respondents are available at

Drug Companies Conspire to Keep Generics Off the Market

If it seems harder to get a generic medication it’s not your imagination. With pay-for-delay tactics, brand prescription drug manufacturers pay generic drug manufacturers for not creating generic versions of their medication. This limits the number of prescription options available to patients and contributes to the growth in health care costs, according to the American Medical Assn. (AMA), which has adopted a policy to work toward ending the practice.

Pay-for-delay agreements are estimated to cost American consumers $3.5 billion per year. The Federal Trade Commission (FTC) has recommended that Congress pass legislation to protect consumers from such – agreements. But reports that Congress has failed to stop pay-for-delay and generic drug makers and big-name pharmaceutical companies have been winning court rulings that allowed it.

The Federal Trade Commission recently filed an amicus brief in the U.S. District Court for the District of New Jersey stating that a branded drug company’s agreement not to launch an authorized generic drug “provides a convenient method for branded drug firms to pay generic patent challengers for agreeing to delay entry.”  The FTC also filed a brief in the case of Lamictal Direct Purchaser Antitrust Litigation.  In the case, the private plaintiffs alleged that GlaxoSmithKline paid Teva Pharmaceuticals to delay entry by promising not to compete with authorized generic versions of the drug Lamictal.

Does The Medicare Drug Discount Program Drive up Prices?

The Patient Protection and Affordable Care Act established the Discount Program to help Medicare Part D beneficiaries with their prescription drug costs while in the coverage gap. Until the Discount Program began in 2011, beneficiaries in the coverage gap paid 100% of drug costs. The Discount Program required manufacturers to provide a 50% discount on the price of brand-name drugs for beneficiaries in the gap.

The General Accountability Office (GAO) interviewed pharmacy benefit managers (PBMs) to get their take on the effects of the program. Most sponsors and PBMs told GAO that the Discount Program may be contributing to rising prices of some brand-name drugs by some manufacturers. However, most manufacturers say they don’t think that the Discount Program affected the drug prices that they had negotiated with sponsors and PBMs.

The PBMs said that some manufacturers decreased rebates for their brand-name drugs because of the Discount Program. In comparison, most of the plan sponsors did not observe manufacturers decreasing rebate amounts and most manufacturers said the Discount Program had no effects on their rebate negotiations. Most sponsors and PBMs told GAO that the Discount Program did not affect Part D plan formularies, plan benefit designs, or utilization management practices.

Prices for high-expenditure brand-name drugs increased at a similar rate before and after the Discount Program was implemented in January 2011. Specifically, from January 2007 to December 2010, before the Discount Program began, the median price for the basket of 77 brand-name drugs (weighted by the utilization of each drug) used by beneficiaries in the coverage gap increased 36.2%. During the same period, the median price for the basket of 78 brand-name drugs used by beneficiaries who did not reach the coverage gap increased 35.2%. From December 2010 through December 2011, the first year with the Discount Program, the median price for the two baskets increased equally by about 13%, the greatest increase in median price for both baskets compared to earlier individual years.

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Last Updated 06/23/2021

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