Why prescription drug spending went through the roof in 2014
Express Scripts, the country's largest drug benefits manager, reported that overall spending increased 13.1% in 2014, largely because spending on specialty drugs increased 30.9%, the highest increase ever recorded. Traditional drugs saw an increase in spending of 6.4%, roughly double the increase in 2013.
That overall increase of 13.1% is huge, but it's mostly a result of much greater increases in spending for only two types of drugs: treatments for hepatitis C and compound medications, custom-prepared drugs that don't have to be approved by the FDA. Without these two types of drugs, overall spending would only have increased 6.4%, Express Scripts said in a statement accompanying the report.
New hepatitis C drugsHepatitis C drug spending went up a whopping 742.6% because of three new medications that were approved in 2013 and 2014: Sovaldi and Harvoni from Gilead Sciences and Olysio from Janssen Therapeutics. These three drugs alone accounted for 11.8% of total spending on specialty drugs in 2014. Together, they made hepatitis C the fourth most expensive health condition requiring specialty therapy (behind cancer, multiple sclerosis and inflammatory conditions such as rheumatoid arthritis). It hadn't even been in the top 10 in 2013.
The fact that the hepatitis C drugs are brand new contributes to the huge increase - they simply weren't available before, so naturally more people used them in 2014 than 2013. But the new drugs are also extremely expensive.
A 12-week course of Sovaldi (manufactured at an expense in the range of $100) costs $84,000, and studies suggest that amount can actually cure a large percentage of patients. The average cost of a decade of liver disease, meanwhile - a common result of hepatitis C - is about $270,000, according to one analysis.
More expensive compounded drugs
Compounded drugs are medications specially prepared for patients who can't take conventional medications, say if they have an allergy or problems swallowing pills. Recently, compounded topical creams for alleviating pain have skyrocketed in cost. The spending increase of 128.4% for compounded drugs drove the 6.4% increase on spending for traditional therapies, which would have been an increase of only 2.3% without the compounded drugs bump.
The increase in compounded drugs spending comes because a change in regulations requires that the cost of compounded drugs be calculated based on the price of each component, instead of the price of the most expensive ingredient. As a result of this regulatory change, bulk manufacturers and compounding pharmacies have begun charging more for individual ingredients, according to Express Scripts.
"They have taken advantage of a loophole to pad their pockets while offering little to no benefit to patients," Glen Stettin, MD, an Express Scripts senior vice president said in a statement last June, when announcing a plan to stop covering 1,000 ingredients used in compounded drugs.
As a result of that change in policy, Express Scripts expects spending on compounded drugs to be much lower in 2015.