Inflated Generics Still No Match for Brand and Specialty Costs

Today’s guest post comes from Todd Grover, Co-Founder, Glass Box Analytics. Todd discusses generic, brand, and specialty drug pricing. He also discusses some of the findings from Elsevier’s recent Generic Price Volatility Survey. These survey results are published in The Impact of Rising Generic Drug Prices on the U.S. Supply Chain. (Free download)

Todd believes that all drug claims should be handled by drug price specialists. Medical claim specialists should have drug price training and access to comprehensive, current, and reliable drug pricing information. Also, providers should check and make sure that they are not over-paying their suppliers.

Read on and see if you agree.

Inflated Generics Still No Match for Brand and Specialty Costs
By Todd Grover, Co-Founder, Glass Box Analytics

Generic drug price inflation has been at the forefront of concerns for payers, PBMs, and pharmacies over the past couple of years. Indeed, when Elsevier surveyed stakeholders across the drug supply chain about the impact of increasing generic drug prices, the response was ready and strong.

A report summarizing and giving context to the survey results is available here. Although some generic drug prices have risen, they still cannot compete with brand and specialty drugs in the high prescription drug costs contest. This truth was noted in recent media stories covering the CMS release of data about Medicare prescription drug spend in 2013. The CMS report provided details on drugs prescribed for Medicare Part D participants, along with the costs for those drugs. Read about it here.

Even allowing that generic drug prices have become more expensive overall, and that those cost increases have had a significant impact, I doubt that anyone was surprised to learn that the 10 most commonly prescribed drugs, which were generics, did not account for the bulk of Medicare drug spend. Even with tens of millions prescriptions being filled for top generic drugs, the drugs that cost Medicare the most in real dollars were brands dispensed to patients that numbered in the hundreds of thousands to less than two million.

The five most costly drugs were Nexium, Advair Diskus, Crestor, Abilify, and Cymbalta, each costing Medicare more than $2 billion reimbursement dollars during 2013. Also not surprising, but somehow still astounding, is the fact that the 400 most expensive drugs accounted for fewer than 1 percent of claims but one quarter of the costs. Those are some expensive drugs, now commonly referred to as specialty drugs.

Of course, there is no official drug classification called specialty, but the term generally is used to describe drugs that treat less common conditions, are produced using advanced biotechnology, and which require special administration, distribution, storage and/or monitoring, all of which add up to higher costs, the specialty drug’s most defining characteristic.

Being in the drug pricing data business, my partners and I get a lot of questions about how to reduce, or at least contain, drug spending. We are often able to provide some pretty sophisticated analysis to pinpoint the issues and help reduce drug spend and/or increase reimbursements. When it comes to specialty drugs, however, no sophisticated analysis is required.

As a rule, claims for (non-specialty) brand drugs and generic drugs are paid through pharmacy benefit managers, whether internal or contracted, who pay close attention to drug prices, which rise and fall at varying rates and according to no fixed schedule. Brand drug prices are more stable since there is usually only one manufacturer and, while the price can change, that manufacturer’s Wholesale Acquisition Cost (WAC) is usually an excellent indicator of the actual acquisition cost, rebates and discounts notwithstanding.

The same is true for specialty drugs. They each have a price and to see how the claim amount compares to that price, all one need do is to look up the price. This may seem elementary to drug price and pharmacy benefit specialists, but the true cost of drugs is much more mysterious in the medical claims world, where specialty drugs reimbursements are often bundled into a provider’s medical services claim. This is not to say that there is no amount claimed for the drug, just that it is going through a different, even less transparent, process than that of pure pharmacy claims.

My partners and I often hear from payers about specialty drugs going through medical claims. They usually have a question that is some variation on “how much should this drug cost?” It is always an easy one to answer. We just search our drug price database for the most current price and tell them. (Please note that we will not continue to do so, should we be faced with a barrage of calls as a result of this article!) Providing the correct drug price is easy, as is diagnosing the problem: "You are paying too much for the drug." The harder questions to answer are: why are claims submitted for prices that are many times higher than the drug’s true price and why do payers continue to pay these claims?

My opinion is that drug claims should be handled by drug price specialists or, at the very least, medical claim specialists should have drug price training and access to comprehensive, current and reliable drug pricing information. And it wouldn't hurt for providers to check and make sure that they are not over-paying their suppliers or over-charging their payers and patients.

Drug pricing is a complicated business with many facets. Recent generic drug price volatility truly is a complex problem. You can read more about the impact it is having throughout the industry here. You will also receive basic information about accurate drug price information sources to help ensure you don’t pay too much for any drug, including brand and specialty drugs.

If you have questions or would like to learn more about Elsevier’s white paper titled The Impact of Rising Generic Drug Prices on the U.S. Supply Chain, please email Loretta Lombardo.