Drug Spending in 2017: The CEO of Prime Therapeutics Responds to Drug Channels

A few weeks ago, I highlighted the latest drug spending data in Reality Check: New Prime Therapeutics Data Show Very Low Drug Spending Growth in 2017. As I see it, these data contradict the public rhetoric about excessive growth in drug spending and prices. I concluded that drug spending is not actually "out of control."

Jim DuCharme, president and CEO of Prime Therapeutics, emailed me with an alternative and much more critical interpretation of the drug spending situation. Fortunately, he didn’t seem to mind my artistic choices.

Jim was kind enough to allow me to share his thoughts with the Drug Channels audience. Read on for his perspective.

A RESPONSE TO DRUG CHANNELS
By Jim DuCharme, president and CEO, Prime Therapeutics

I read your recent post on the Drug Channels blog and appreciated your mention of Prime Therapeutics’ (Prime’s) excellent mid-year drug trend results as helping our clients control drug spend. I do, however, offer different conclusions in those trend reports.

I believe that drug prices are one of the largest problems confronting our U.S. healthcare system. However, it is masked by offsets such as recent price competition and the cure rate in Hep C as well as some really effective programs and outcomes in pain management. I truly believe that pharmacy benefit managers and their drug cost management programs and strategies are the only thing between health plans and unabated double-digit drug trends. Prime does believe there is a drug cost problem in America.

I want to share some additional background on what we’re seeing at Prime, including important market behaviors. As you noted, “there’s more to drug spending than meets the eye,” and here are three important facts that shouldn’t be overlooked:

Fact One: There is still outrageous drug spending in America and exorbitantly-priced drugs continue to be a significant challenge for payers and members.

For example, five drug categories in Prime’s top ten commercial categories by expenditure have monthly average drug costs of more than $1,700, with the highest being more than $26,000.

Fact Two: We are not seeing moderation of these exorbitant prices within top drug categories, i.e., the drugs driving the biggest portions of client spend.

Every one of the five categories in our top-ten with monthly costs greater than $1,700 saw net unit price increases of 6% to 27% in the first half of 2017, with an average increase of 10%. Even the lowest increase is about three times the rate of general consumer inflation.

While it is true that expenditures for the most exorbitantly priced drug category—hepatitis C—are dropping due to reduced utilization, expenses in other high-cost categories are rising. For example, autoimmune drugs, which have an average monthly price tag of about $4,700, saw 9% net cost growth and 15% increased utilization in the first half of 2017. This fueled more than a 24% increase in spend and propelled autoimmune drugs to the #1 position among all drug categories for our commercial clients.

Fortunately, Prime has been able to achieve cost reductions (not just moderated increases) in categories such as pain medicine, a reflection of our focused effort to manage controlled substance and help offset the national opioid abuse epidemic. Successes like these play a big role in driving the lower overall trend numbers we reported, but they exist within a context of ongoing challenges in other high-expense categories.

For example, every top-ten category with greater than 50% brand utilization saw gross cost increases at an average level of 11%. Fortunately, Prime reduced these gross increases by approximately half, but the remaining 5% net average increase is still more than twice the level of consumer inflation.

This confirms the conclusions of multiple scholars and industry observers that brand-name drugs, many with market exclusivity, continue to be a major revenue generator for manufacturers and a great source of cost pressure for prescription medicines. Fortunately, the use of generics helps to offset this pressure, but even with greater than 85% generic utilization, generic drugs account for just 19% of our commercial clients’ drug spend while brand medications account for 81%.

Fact Three: The reason our commercial clients experienced low commercial trend of 0.8% was because of Prime’s work to counterbalance these forces.

This is not a trivial endeavor. Every day, this counterbalancing work requires the effort of thousands of dedicated employees who work extremely hard to ensure our members get the drugs they need at the best price. Our pass-through model allows us to maximize the value we deliver to our clients. We are continually seeking new opportunities to help our clients deliver the highest quality and most cost-effective pharmacy benefit programs.

All these facts serve to illustrate an important point about the “gross to net bubble” that you frequently write about. Just because cost increases may be mitigated by the time they emerge from the bubble, it doesn’t mean that the bubble is optimal. We still have high priced medications, and they continue to rise in cost at unsustainable rates.

While some might assume our trend results indicate there “is not a problem,” we would assert that our results are hard won. It takes unrelenting effort to counteract the steady and pervasive growth in drug costs. So far this year, by working together with our health plan clients, we have been successful at counteracting the drug cost problem, and we are hard at work trying to keep the problem from growing. However, to use a medical example, just because a medication has helped moderate the symptoms of a disease, it doesn’t mean that the disease is no longer a concern. The problem of drug pricing in America is by no means cured.

I encourage you to read this great article by Kim Keck, one of our owners and Board members. It is consistent with Prime's view of the drug cost problem that we must jointly confront and endeavor to solve.