Vantage Point – Why generic competition might not stem price moderation calls

The approach of generic competition for many big sellers might tempt some in the pharma industry to believe that the era of drug price sticker shock is over. But more than seven in 10 Americans still believe that drug prices are unreasonable, a number that has not changed in nearly a decade, even though consumers broadly went through a period of shrinking out-of-pocket costs during the patent cliff.

And, with the threat of US price control receding, and government forecasts now showing that the amount Americans pay for drugs is set to rise at some of the highest rates ever recorded (see tables below), the sector looks like it faces a long-term public relations battle.

The 70% solution

Introductions of expensive hepatitis C and oncology treatments in 2014 and 2015 are widely seen as the trigger for the public’s outcry against drug pricing, along with subsequent actions like price hikes for the anti-infective daraprim frequently used to treat HIV patients and the EpiPen injection for severely allergic people.

But the fact is that pollsters had identified this as a problem at least as far back as 2008. At that time the Kaiser Family Foundation’s health tracking poll found that 79% of people surveyed believed that the price of drugs was unreasonable, similar to the 77% who thought the same in September 2016, the last time the foundation asked this question.

In general, do you think the cost of prescription drugs is reasonable or unreasonable?
Sep 2016 Aug 2015 Jun 2015 Mar 2008
Reasonable 21% 24% 22% 18%
Unreasonable 77% 72% 73% 79%
Don't know 2% 4% 5% 2%
Refused 1% - - -
Source: Kaiser Family Foundation.

The question was not asked in tracking polls between 2008 and 2015, but the numbers show a remarkable constancy, at 70-80% every time the US public’s opinion is sought.

Prescription drugs get the reputation for being expensive because they’re “one of the touchpoints of the healthcare system”, says Bianca DiJulio, associate director of public opinion and survey research for Kaiser. “At some point you’re going to have to take a prescription drug. It’s one of the places where people see the prices.”

The durability of the public’s view of drug prices ought to be of some concern for the sector given that 2008-15 saw out-of-pocket costs shrink by about 2% a year, in a period that saw sales of huge franchises like Lipitor, Plavix, Zyprexa and Seroquel tumble because of a loss of market exclusivity and generic competition. Later the hepatitis C drugs Sovaldi and Harvoni were introduced, along with new cancer treatments Keytruda and Opdivo, but the impact might not have been felt widely at that point.

US prescription drug expenditures, 1970-2015 ($bn)
Year Total Out of pocket Health insurance, including government programmes Private health insurance
1970 5.5 4.5 0.9 0.5
1980 12.0 8.6 3.2 1.8
1990 40.3 22.9 16.2 10.9
2007 235.6 52.2 179.7 106.9
2008 241.4 49.6 188.2 109.7
Annual growth 1970-2008 10% 7% 15% 15%
Annual growth 2000-2008 9% 5% 10% 8%
2009 252.7 49.1 200.1 116.1
2010 253.0 45.2 204.4 116.0
2011 258.7 45.2 210.6 116.9
2012 259.1 45.1 211.4 112.8
2013 265.1 43.6 219.1 113.5
2014 297.9 44.8 251.0 128.2
2015 324.6 45.5 277.0 139.8
Annual growth 2007-2015 5% -2% 7% 5%
Source: CMS.

That shrinkage in out-of-pocket costs might not have been felt among all patients, particularly the chronically ill and those with limited or no insurance – however, the broad numbers suggest that many were feeling less financial stress from buying prescription drugs.

“It’s doubtful that anyone really thought that drug prices and spending were going to moderate long term,” says Leigh Purvis, director of health services research with the AARP’s Public Policy Institute. “It was pretty well known that there were numerous top-selling drugs coming off patent over that time period, and that eventually the effects of this patent cliff would end. Also, I’m sure consumers were happy when less expensive generic versions of their prescription drugs became available, but I don’t think they necessarily recognised that it was part of a larger trend.”

When the Kaiser poll has asked people how easy it is to afford prescription drugs, the share saying that this is very or somewhat easy is greater than 70% – even among people who regularly take drugs – and only a small share, running around 20% or less, report that they or a family member has not filled a prescription, skipped a dose or split a dose because of cost.

No moderation

The patent cliff has been over for some time, yet consumers have broadly been insulated from the subsequent rise in costs – US government health analysts reckon that in 2016-18 out-of-pocket spending will rise just 3% a year compared with the 7% rise in all prescription drug spending and 6% rise for private health insurance.

That is not a trend the government forecasters see as sustainable, however. From 2019 to 2025 the out-of-pocket growth rate reverts to 5%, similar to the growth rate seen in the first decade of the century.

US prescription drug spending forecasts, 2016-2025 ($bn)
Year  Total Out of pocket Health insurance, including government programmes Private health insurance
2016 340.7 45.5 293.1 146.2
2017 360.1 46.5 311.6 153.4
2018 387.4 48.2 337.1 164.8
Annual growth, 2016-2018 7% 3% 7% 6%
2019 412.3 50.3 359.9 175.4
2020 438.2 53.2 382.7 183.9
2021 465.8 55.6 407.8 194.1
2022 495.7 58.1 435.1 205.3
2023 527.5 60.8 464.1 217.0
2024 561.2 63.6 494.8 229.3
2025 597.1 66.8 527.5 241.9
Annual growth, 2019-2025 6% 5% 7% 6%
Source: CMS.

This will come despite a mini patent cliff in 2019, the year Roche’s giant Herceptin and Avastin franchises lose market exclusivity and Abbvie’s Humira could also see competition. The difference between 2019, with $41bn at risk, and 2012, when $52bn worth of sales came off patent, is that the coming cliff involves biologicals instead of small molecules, and the shape of biosimilar erosion has yet to be defined – indeed, innovative biological makers have fought back on cost (Samsung leaps into its first US biosimilars battle, July 25, 2017). 

As a sign of this, EvaluatePharma’s World Preview 2017 only expects that $19bn of the $41bn in sales will be lost, compared with $37bn of the $52bn in 2012.

The growth in consumer cost-sharing could be helped along by benefit design. A separate survey the Kaiser foundation conducts with the Health Research and Education Trust has found that employers are adding more coverage “tiers” to health insurance plans to offset the cost of more expensive innovative drugs, with increased cost sharing for drugs in the higher tiers (Vantage Point – Four-tier drug plans thrust affordability into spotlight, Febuary 19, 2014).

Recent surveys have shown that three-tier plans – consisting of generic, preferred brand and non-preferred – have been the most common benefit design. Four-tier plans – which typically segregate the most expensive drugs into an even higher cost-sharing category – are now in place at nearly a third of employers, however.

Copayments for speciality drugs in separate tiers run at around $89 per prescription, or if structured as coinsurance enrollees pay 26% of the total cost.

“More and more people are being exposed to coinsurance,” says AARP’s Ms Purvis. “Unfortunately, when you’re talking about drugs that cost tens or even hundreds of thousands of dollars per year, even a small percentage of the cost can be financially prohibitive.”

Amid the political tensions of the past few months, big pharma groups have recently shown a willingness to introduce innovative drugs without a big price premium, as well as to pledge to keep price increases down (Roche prices Ocrevus for maximum disruption, March 29, 2017).

However, the sector’s migration towards biologicals, orphan indications and precision drugs with smaller populations suggests that new drugs will continue to reach the market at price points not seen before. This helps explain why government forecasters believe that prescription drug spending growth will see little restraint in the next decade.

“Given current prescription drug price trends, what’s coming down the pipeline, and the overall level of attention on healthcare spending, it’s extremely hard to imagine that the pressure to moderate drug prices will end any time in the near future,” Ms Purvis says.

To contact the writer of this story email Jonathan Gardner in London at jonathang-us@epvantage.com or follow @ByJonGardner on Twitter

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