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The Pulse of the Pharmaceutical Industry

Drug spend drops; specialty spend to rise two-thirds 2013

Written by: | | Dated: Saturday, June 1st, 2013

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Total spending on U.S. medicines fell 3.5 percent on a real per capita basis in 2012 and the use of healthcare services overall declined for the second consecutive year, according to research by the IMS Institute for Healthcare Informatics. Meanwhile, U.S. spending on specialty prescription drugs – those used to treat chronic, complex diseases such as cancer, multiple sclerosis, and rheumatoid arthritis – is projected to increase by two-thirds by the end of 2015, while spending on more traditional prescription drugs will drop by 4 percent, according to a forecast by Express Scripts.

The IMS research report – “Declining Medicine Use and Costs: For Better or Worse?” – finds that total dollars spent on medications in the United States reached $325.8 billion last year, or real per capita spending of $898, down $33 from 2011. Underlying drivers for the overall decline in healthcare service use included fewer patient visits to office-based physicians, fewer non-emergency admissions to hospitals and outpatient facilities, and a less severe flu season in the early part of 2012. Patent expiries in 2012 contributed $28.9 billion to the reduction in medicine spending. This was their largest-ever impact as millions of patients accessed lower-cost generic versions of additional medicines.

Patients with insurance paid higher deductibles, copays and co-insurance for their overall healthcare in 2012, but prescription drug copays for most patients declined. At the same time, new transformative medicines became available to treat a large number of diseases with small or strictly defined patient populations.

“The cost curve for medicines was clearly bent in 2012, for better or for worse,” says Murray Aitken, executive director, IMS Institute for Healthcare Informatics. “To some extent, this is a harbinger of more efficient use of our healthcare resources, but it also reflects a decline in utilization that may be the result of under-treatment and an imbalance between prevention and care.”

The total cost of medicines declined by 3.5 percent on a real per capita basis to $325.8 billion. In addition to lower utilization of branded drugs, the primary drivers were the increased availability of lower-cost generics, which now account for 84 percent of all prescriptions; the moderating impact of price increases; and lower spending on recently launched medicines. Healthcare costs remain concentrated among relatively few patients suffering from multiple chronic conditions, cancer, or other specialty diseases. In the case of the commercially insured, under age 65 population, 5 percent of the members incurred 51 percent of total healthcare costs by using more than $15,684 of healthcare services per person in 2012.

Patients with insurance are paying higher deductibles and higher copays or co-insurance, with nearly 20 percent of the insured now in a consumer-driven health plan. Average out-of-pocket costs for commercially insured under age 65 patients reached $1,146 in 2012, a 30 percent jump from 2011 and entirely the result of higher deductibles. The average pharmacy benefit copay declined by $2 to $121 in 2012; patients filled 72 percent of all retail prescriptions with a copay of $10 or less.

Patients gained access to 28 new molecular entities in 2012, including seven with orphan drug designations by FDA for rare diseases, a novel oral therapy for rheumatoid arthritis, a treatment for cystic fibrosis that will significantly improve life expectancy for patients with a specific genetic mutation, and an inhalable anti-psychotic. Nine new cancer treatments were introduced last year, the most in more than a decade, including a breakthrough for treating basal-cell carcinoma.

According to the Express Scripts analysis, U.S. spending on specialty prescription drugs is projected to increase 67 percent by the end of 2015.

“As we see what’s on the horizon, it’s time for employers and health plans to act so they can continue to offer an affordable pharmacy benefit for their members,” says Glen Stettin, M.D., senior VP, clinical, research, and new solutions at Express Scripts. “New specialty treatments are making a difference in the lives of patients, but the high cost of these drugs creates difficult decisions for plan sponsors on which medicines to cover.”

Prescription drug spending on eight of the top 10 specialty therapy classes is expected to continue to increase over the next three years. This, Express Scripts analysts say, is due to both the robust pipeline of new biologics and physicians delaying treatment of patients until the new drugs are on the market. By the end of 2015, Express Scripts expects that cancer, multiple sclerosis, and inflammatory conditions such as rheumatoid arthritis – all specialty conditions – each will command higher drug spending than any other therapy class except diabetes.

Hepatitis C drug spending is projected to quadruple over the next three years, the largest percentage increase by far among therapy classes. By the end of 2015, Express Scripts analysts believe that spending on medications for hepatitis C will exceed that of much more common conditions, including high blood pressure. This increase will be caused by new interferon-free medications expected to gain FDA approval in 2014, as well as an increase in diagnoses related to new screening guidelines.

Potentially mitigating the rising cost of specialty medications would be an improved pathway for biosimilars. Express Scripts recently projected that the country would save $250 billion between 2014 and 2024 if the 11 most likely biosimilar candidates were launched in the United States.

According to the Express Scripts forecast, overall spending on traditional prescription drugs – mostly pills used to treat common conditions such as high cholesterol and depression – will decline 4 percent by the end of 2015, largely because of the availability of generic medications. Only two of the top 10 traditional therapy classes, diabetes and attention disorders, are likely to have spending increases over the next three years, but those increases will be significant.

Diabetes became the costliest prescription drug therapy class in 2011, and according to the new projections, it will continue to hold that distinction at least through 2015. Over the next three years, Express Scripts expects spending on diabetes medications to rise an additional 24 percent because of high prevalence and a robust pipeline of new therapies.

Despite the availability of generic equivalents for many attention disorder therapies, the data projects spending in the category to increase by about 25 percent over the next three years, driven by increased utilization among middle-aged adults and wide geographic variation in diagnosis. Express Scripts research shows that prevalence, medication use, and associated medical and pharmacy costs for attention disorders is highest in the South. However, the Northeast region of the United States experienced rapid growth in attention disorder diagnosis, and that region’s associated costs grew nearly 60 percent from 2008 to 2010.

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