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Emerging Threats to Prescription Drug Affordability

Bottle of prescription pills laying on moneyA new Business Insurance article details the strategies mid-size businesses are relying upon to mitigate pharmacy costs including increased generic drug utilization, specialty pharmacy utilization programs, value-based insurance design, and narrower pharmacy networks.   Taken together, these tools and techniques (along with many others like mail-service pharmacies) have helped bring down the rate of growth — dramatically — in prescription drug spending over the past 15 years.    In 1999, the annual rate of growth in prescription drug spending topped a whopping 18 percent and was a key driver of rising health care costs.  For 2011, the year for which data is most recently available, the growth rate for prescription drug spending was a much more sustainable 3 percent.     

While there is a consensus among consumers, large employers, small businesses, health insurance plans, and public programs about how to balance cost, access, and quality, these gains are not assured.   Lobbying efforts, problematic proposals, and the specter of high-cost biologic drugs insulated from generic competition are all imperiling the affordability of prescription drugs.

1.       Retail-Pharmacy Lobby Agenda

The retail pharmacy lobby is working hard to enact special-interest legislation at the state and federal levels that would protect their income stream at the expense of pretty much everyone else (working families, seniors, Fortune 500 employers,  small businesses, Medicare, Medicaid, and state and federal-employee benefit plans).   In a number of states, including Mississippi, Oregon, Washington, and Oklahoma, retail pharmacies are pushing (or already have succeeded) to have State Boards of Pharmacies (comprised almost entirely of — you guessed it — retail pharmacists) regulate pharmacy benefit managers.   PBMs typically negotiate reimbursement and other contract terms with thousands of retail pharmacies on behalf of employers and health plans.   If the implications weren’t so serious, these proposals would be less dangerous.   No less than the Federal Trade Commission has indicated these types of proposals will increase prescription drug costs and reduce competition.   Conflict of interest, anyone?

2.        Proposed Essential Health Benefits Rule on Pharmacy Benefits

A few months back, we reported on the proposed rules around essential health benefits (EHB) for health plans offered through new health insurance marketplaces including prescription drugs.  News reports indicate that the White House has sent the proposed rule to the Office of Management & Budget for final review in anticipation of an upcoming release.   As we have outlined previously, the fundamental problem with the Administration’s proposed approach on EHB/pharmacy benefits is that it does not conform with how the commercial market actually works.   Health plans, employers, and PBMs do not design formularies on a USP drug class or category system.   Instead, they categorize disease states and populate them with the most efficacious prescription drugs.  Two potential cost dangers associated with the proposed rule are that it will require companies to put seldom-used prescriptions on the formulary and brand-name drugmakers will have a new lobbying venue to target for getting their drugs considered as a “new class.”    We are hoping the Administration fixes the proposed rule to a more workable and balanced approach.

3.         Lack of Generic Competition for High-Cost Biologics

Lastly, there has been considerable news about the lack of generic competition for high-cost biologics.  As we have reported previously, the lack of generic competition is a looming cost driver.  From both a consumer and a payer perspective, the ACA’s biosimilar provisions are a missed opportunity to bring generics more quickly and efficiently to market.   The Food and Drug Administration has been slow to define how similar a drug should be to the originator product.  As biosimilar companies work to bring a biosimilar to market, the statute requires them to turn over trade secrets to the originator company – a requirement perhaps without precedent in commerce. Many experts believe these issues and others are significant barriers to entry in the U.S. marketplace for biosimilars and, thus, needlessly keep out competition and drive up health care costs.   If the biologic cost surge is left unchecked, we could see a return of double-digit rates of growth in prescription drug spending – but this time with prescriptions that cost far, far more than those in the 1990s.