Drug price inflation slows, but pharmacy costs are still in the fast lane

After drugs with huge price tags rocked pharmacy budgets in 2014, inflation in medication costs eased last year, benefit managers say, due to spending controls and fewer new blockbusters.

Reports in recent weeks from the two largest pharmaceutical benefit managers in the country show a drug cost trend of about 5 percent in 2015, which was roughly half the growth rate of the previous year.

Insurers and drug benefit managers in the Twin Cities see a somewhat similar trend locally, although there’s still plenty of sticker shock with pharmacy bills.

The lower growth rate, they point out, comes on a much larger spending base.

“You’re not seeing numbers like you did, but the dollars in total aren’t any less,” said Steve Ritter, president of ClearScript, a pharmacy benefits manager that’s owned by the Minneapolis-based Fairview Health System. “Drug prices are going up, regardless of where you look.”

Health insurers hire pharmaceutical benefit managers — called PBMs, for short — for the portion of coverage that pays for medications.

PBMs negotiate prices for medications with drug companies. The companies work with insurers to create “formularies” that specify what patients spend for different drugs, which can steer patients to lower-cost options. They also have programs to reduce waste with costly drugs by making sure patients take them.

Rhode Island-based CVS Health released its annual report on drug spending in late February, attributing moderation in cost trends to its management services.

Last week, St. Louis-based Express Scripts issued a report with similar numbers and a similar conclusion.

Minnetonka-based UnitedHealth Group’s division called OptumRx, which is now the third largest pharmaceutical benefit manager, hasn’t yet issued its drug trend report.

Ritter of ClearScript said the drug trend reports this year are unusual because they factor the rebates the companies negotiate with drug companies. Rebates moderate the growth curve, he said, but aren’t necessarily passed along to all clients.

In 2015, there wasn’t a repeat of the upheaval caused the previous year, Ritter said, with new hepatitis C medications.

The drugs offer phenomenally high cure rates, and thereby are helping many patients avoid serious health care problems such as liver failure. That, in turn, generates long-run savings by avoiding costly treatments like liver transplants.

But in the short term, pharmacy budgets were rocked because the new drugs cost about $1,000 per pill. Patients take one per day for about three months, for a total tab of about $90,000.

The costs were still in pharmacy budgets during 2015, but commercial insurers started to see the supply of patients needing drugs moderate as treatment brought cures, said David Lassen, chief clinical officer at Prime Therapeutics, a PBM based in Eagan.

“As you look ahead in 2016, we’re anticipating an even further reduction in trend due to hepatitis C,” Lassen said.

Prime Therapeutics hasn’t published its drug trend report yet, either, but Lassen said the company had a similar experience to the other PBMs. Following cost shocks in 2014, more employers were willing to adopt cost-control measures in the pharmacy benefit portion of their health plans, said Steve Johnson, the senior director of health outcomes.

Rebates helped moderate drug cost trends last year at HealthPartners, said Rick Bruzek, vice president of pharmacy services for the Bloomington-based health plan. Even after removing the rebate impact, trends moderated due in part to high use of low-cost generic medications, Bruzek said, and a moderate decrease in utilization.

Even so, costs were up overall due to increases with brand-name drugs, Bruzek said, as well as brand name “specialty” drugs, such as treatments for cancer, hepatitis C, multiple sclerosis and rheumatoid arthritis.

“It’s still consuming a larger and larger portion of the health care dollar, and that’s what employers are concerned about,” he said.

At Minnetonka-based Medica, spokesman Greg Bury said the company’s experience last year was different from that reported by the large national PBMs, as there was no moderation in drug cost trends.

“We are faced with substantial drug manufacturer price increases in the specialty market, combined with an increase in membership utilizing high cost specialty agents,” Bury said in a statement.

That use of specialty medications carries over to the new government-run health insurance exchange markets, Bury said. Similarly, Express Scripts reported that use and prices for both traditional and specialty medications grew faster on the exchanges, which were launched by the federal Affordable Care Act, than the commercially insured market last year.

“The way this program is designed, it attracts people who are in need of care, not necessarily those who are well and want to have a safety net in case they become ill,” said Julie Huppert, an Express Scripts vice president, in a statement. “Many millennials may be doing the math on the tax penalty and deferring enrollment until they need it.”