Runaway Drug Price Increases: Unsustainable Price Increases Burden Pharmacy Spending

The rising costs of health care seem to be on everyone’s mind. From payers, such as health plans and self-funded employers, to consumers, no one is immune to the cost increases seen in health care. There are many factors driving health care costs and thus increases in cost. When considering pharmacy spend, everyone seems to be talking about the increase in spending on specialty drug products as one of the main driving factors.

The increase in specialty drug spend, in my mind, can be boiled down into two buckets. The first, an increase in utilization, represents a major win in therapeutic areas that have traditionally had poor treatment options. Take for example rheumatoid arthritis. For years, this condition meant pain and joint deformation for many patients without many options for treatment. Today however, we have many medication options, mostly in the specialty space, for the treatment of this condition that offer a brighter outlook for many. This innovation is good for individual patients and for society and is what we have come to expect as medicine continues to progress.

The second bucket, the regular price increases set by drug manufacturers on an annual or semi-annual basis, is the piece I am more concerned over. This is the piece that can greatly affect payers and consumers without providing the clear overall benefit we can see in the first bucket. These regular increases have varied widely but often hover near 10% or 12% annually. While a 12% increase in non-specialty drugs may not have moved the needle too much in the past, the same level of increase in specialty pricing can represent a major burden on payers and consumers as many of these drugs cost thousands of dollars per month. 

This level of increases in prices has continued to occur while over the last 5 years the rate of national inflation has ranged from 0.1% to 3.2% and health care inflation has ranged 1.94% to 4.89%. The discrepancy between the rate of the rise in drug prices and rates of national inflation have, in my opinion, put a strain on payers and consumers. This creates a pattern where a larger proportion of dollars available to spend have been tied up in specialty drug costs.

It has been interesting to watch the nation become aware of such increases in drug pricing over the last couple of years. Much of this attention is due to high profile cases of drug price increases including Isuprel, Nitropress, Daraprim, and EpiPen. I am actually grateful for the attention and that the nation is beginning to look closer at drug pricing. This increased attention has created political and social pressures on the industry, which can help drive improvements for society. Drug pricing has become an issue the public is willing to be involved in.

We have now seen a response from some of the large names in the pharmaceutical industry in the form of social contracts. It is hard to definitively say whether these social contracts are a direct result of the political and social climate, or if other factors are involved. Regardless of the reason though, I believe these are a good first step in managing drug cost increases and can help foster public good will. These social contracts have come from the likes of Allergan who promised to limit their price increases to single digits annually and to avoid the drastic “hockey-stick” like price increases at the end of a product patent life. Novo Nordisk similarly promised to keep single digit percentage increases and to continue with their copay assistance programs for consumer assistance. Most recently, Sanofi promised to keep their increases below the rate of medical inflation each year.

I for one see these contracts as a positive step for spending in the specialty space and hope to see the trend continue. Many of these companies are making major strides in disease states once thought as nearly impossible to treat. As a society, we should be willing to reward this innovation while manufacturers can use these kinds of social contracts to help ensure that these rewards do not outpace society’s ability to pay.