Which PBM Best Managed Drug Spending in 2018: CVS Health, Express Scripts, MedImpact, or Prime Therapeutics?

It’s time for our annual Drug Channels’ examination of drug spending reports. For 2018, we again aim our magnifying glass at the annual trend reports from four large pharmacy benefit managers (PBMs): CVS Health, Express Scripts, MedImpact, and Prime Therapeutics. (See their report links below.) The other large PBMs—Humana and OptumRx (UnitedHealth)—provide no public transparency into their performance.

Using these data, which account for most of the commercial market, we detect the following key trends for 2018:

• Once again, we find that drug spending is not skyrocketing—contrary to what you often hear from journalists and politicians. Spending grew by about 2% in 2018, continuing a multiyear decline in the growth rate. Total drug spending at some plan sponsors even declined.

• Spending on traditional drugs dropped by mid-single digits, continuing a multi-year trend driven by generic drug deflation.

• For specialty drugs, higher utilization—not drug costs—was the biggest factor driving specialty spending growth. This wasn’t true for all specialty categories, however.

Patients—in the aggregate—gain from the slower growth in drug spending. What’s missing from the PBM reports is a transparent accounting of how much patients pay out of pocket for highly rebated drugs that are sold to insurers and PBMs at deep discounts. The hidden subsidies of the gross-to-net bubble remain—for now.

GOTTA CATCH 'EM ALL

Here are links to the four PBMs’ 2018 drug trend reports. As always, I encourage you to review the source materials for yourself.

• CVS Health

• Express Scripts (I reviewed this report in Express Scripts Confirms It (Again): Minimal Growth in Drug Spending and Prescription Costs.)
  

• MedImpact

• Prime Therapeutics

Note that our comparison focuses only on commercial payers: employers and health plans. Those are the only data reported by all four PBMs. Express Scripts provided separate trend figures for Medicare, Medicaid (excluding rebates), and Exchanges. MedImpact and Prime Therapeutics provided separate trend data for Medicare and Medicaid.

These reports are full of interesting data, but they’re primarily marketing documents, not peer-reviewed research studies. I believe that the data are roughly comparable among the reports, despite some methodological differences.

We excluded Anthem’s 2018 drug trend report from its IngenioRx PBM. It's a skimpy report with insufficient data. (I asked Anthem for details, but it declined to answer. Maybe next year.) FYI, Anthem formed IngenioRx in 2017. In early 2019, Anthem formally terminated its agreement with Express Scripts and began transitioning its PBM business to IngenioRx and CVS Health (which will provide Anthem with various PBM services). Note that the Express Scripts’ data for 2018 excludes claims from Anthem.

As far as I know, none of the smaller PBMs releases comparable information on management of drug trend.

POKÉ-ING AROUND THE DATA

The chart below shows the unweighted average drug trend figures for the past four years. As you can see, we are in the midst of a multi-year slowdown in drug spending. Consequently, drug spending is now growing much more slowly than every other part of U.S. healthcare.

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These data provide a comprehensive picture of the overall commercial payer market, because these PBMs accounted for about two-thirds of U.S. retail, mail, long-term care, and specialty equivalent prescription claims in 2018. See Exhibit 76 of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

The data also echo the numbers from the government’s National Health Expenditure Accounts. See CMS Confirms It (Again): Minimal Drug Spending Growth, While Hospital and Physician Spending Keep Going.

SLOWDOWN SHOWDOWN

The chart below summarizes the reported 2018 commercial drug trend figures from each of the four PBMs: the Caremark business of CVS Health; Express Scripts; MedImpact; and Prime Therapeutics. The PBM reports are the only public sources that distinguish between spending on traditional drugs compared with spending on specialty drugs.

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The PBMs’ data highlight key trends about drug spending:

• For 2018, each of the PBMs reported overall changes in drug spending that were in the low single digits.

• The overall change in spending for CVS and Prime was higher than previous year’s figures. For CVS, two-thirds of the increase came from higher utilization (discussed below). For Prime, about two-thirds of the increase came from increases in unit costs.

• Spending growth on traditional drugs declined as rebates increased and generic dispensing rates grew. However, the declines were slightly smaller than the previous year’s figures. As the first chart above shows, the overall average increased slightly in 2018. This was due to the slightly less negative growth in spending on traditional drugs.

• Specialty drug spending grew by 8% to 12% for the commercial clients of the four PBMs. Those figures remain below recent historical ranges for specialty spending growth. 

A BOLT OF SPECIALTY BRILLIANCE

The overall spending figures don’t tell the whole story. That’s because year-over-year changes in drug spending have two primary components:

• Unit costs—the payer’s cost per unit of therapy. Unit costs vary with:
• the rate of inflation in brand-name drug prices
• shifts to different drug options within a therapeutic class
• a shift in mix of therapeutic classes utilized by beneficiaries
• the substitution of generic drugs for brand-name drugs

• Utilization—the total quantity of drugs obtained by a payer’s beneficiaries. Utilization varies with:
• the number of people on drug therapy
• the degree to which they adhere to their drug therapy
• the average number of days of treatment

The total change in spending shown above equals the sum of changes in unit cost and changes in utilization. The chart below deconstructs changes in spending on specialty drugs for the four PBMs in our study.

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The underlying components of specialty trend differed somewhat among the four PBMs. However, the data clearly show that most specialty drug spending growth can be attributed to the growth in the number of people being treated and the number of prescriptions being dispensed. For CVS Health’s commercial clients, the 9.3% utilization increase accounted for 85% of the 12.9% increase in specialty drug spending. For Prime’s clients, unit costs declined, which meant that the entire increase in specialty drug spending was due to utilization.

Note that these data do not imply that net costs for all specialty drugs grew slowly or declined. Instead, the launch of generic versions of non-biologic specialty drugs is working the same magic on costs that it did when traditional brand-name drugs lost exclusivity. Generic drugs account for a meaningful share of prescriptions in such therapeutic categories as oncology, e.g., imatinib mesylate, anastrozole, tamoxifen citrate, and inflammatory conditions, e.g., methotrexate, sulfasalazine. Many of these drugs have been subject to the deflationary forces affecting the entire generic industry. See The Big Three Generic Drug Mega-Buyers Drove Double-Digit Deflation in 2018. Stability Ahead?

Express Scripts provided the most detailed information about trend by therapeutic category, which I reproduce below. (These data appear on page 10 of its report and can be viewed by clicking the “Show table” button.) As you can see, inflammatory conditions and oncology both experienced a double-digit increase in trend, driven by unit costs. Those two categories accounted for only 1% of adjusted prescriptions but 24% of spending.

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Utilization growth can be considered a positive trend, because it is well established that pharmaceutical spending reduces medical spending and improves patients’ health. Those who mindlessly call for cuts in drug spending ignore the reality of what’s behind the figures.

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These spending trends have important implications for PBMs’ future business models and profits. Next week, I’ll grab my Poké Ball and examine some of the key issues in advance of the annual investor days at CVS Health and Cigna.