Drug Spending Set to Rise Due to Increased Use of Specialty Drugs

Slow uptake of biosimilars, among other factors, will help propel drug spending over the next 7 years, according to a report released this week by PwC’s Health Research Institute (HRI).

Between 2020 and 2027, retail drug spending under private health plans is projected to increase at an annual rate of 3% to 6%; besides the slow growth of the US biosimilar market, the report cited new costly therapies, mainly specialty drugs, as well as a drop-off in the impact of lower-cost generics.

The report, called Behind the Numbers, said the impact of higher drug spending and other factors will cause a slight rise in the medical cost trend for 2020. HRI predicts a 6% medical cost trend in 2020; after figuring in health plan changes, such as increased employee cost sharing and network and benefit changes, HRI projects a net growth rate of 5%.

However, actions that employers used in the past to contain spending will no longer work in the face of higher prices that increase spending, the report says. Even with employers’ actions, market forces are more powerful.

Trying to keep a lid on healthcare utilization, already dampened by high deductibles and other cost sharing, would only come at the expense of additional employee satisfaction and possibly affect employee health. In response, the report said more and more employers will find themselves in the position of “employee activist.” More employers are negotiating contract prices, setting up their own provider networks, or even creating parallel health systems.

In 2014 and 2015, prescription drug spending growth for private health insurance peaked, largely because of new expensive hepatitis C treatments. Spending fell to negative 3% in 2017 after the impact of those therapies were absorbed and then spending leveled out in 2018 and 2019.

There is another reason for the impact of drug pricing, said an HRI executive.

“Part of the reason for that is because the share of the type of drugs we're paying for is changing,” said Benjamin Isgur, leader of HRI. In 2010, he said, “about 20% of what employers were spending was for specialty drugs and about 80% was for nonspecialty drugs.

"If we fast forward to 2016, we're now up to 42% of the drugs are specialty drugs and 58% are nonspecialty drugs, so that proportion of spend is more and more being influenced by specialty drugs, and specialty drugs cost more. So that is a very good reason why that we call it an inflator for 2020, and it probably will be for some years to come,” he said.

According to an HRI analysis of the OptumRx brand pipeline forecast from the first quarter of 2019, of the almost 300 drugs to be launched between 2019 and 2021, nearly two-thirds are specialty drugs. Although these drugs are high cost initially, their high impact could reduce employer costs over the long term.

Two other inflators also are affecting the medical cost trend in 2020, the report said.

Chronic diseases are afflicting workers, especially obesity and type 2 diabetes, which are contributing to high rates of hypertension and cardiovascular disease. Sixty percent of adults have a chronic disease, with 40% managing 2 or more. For employers, per capita health spending on an individual with a complex chronic illness is 8 times that of a healthy individual.

In addition, there is greater access to mental health services, as employers are beginning to recognize the importance of helping their employees manage their mental health and well-being the same as their physical health. Nearly 75% of employers offer mental health disease management programs, although uptake by employees is still a bit slow. Still costs are expected to rise in the short term, but in the long term, employers will see the efforts pay off as a deflator of medical cost trend. Poorly managed mental health conditions, combined with chronic disease, drive up costs even further than chronic disease alone, the report noted.