Health Law Update

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A new <a href="http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c753c71ad8c22a/?vgnextoid=3f140a4331e8c410VgnVCM1000000e2e2ca2RCRD&amp;vgnextchannel=a64de5fda6370410VgnVCM10000076192ca2RCRD&amp;vgnextfmt=default">report</a> released by the IMS Institute for Healthcare Informatics shows that U.S. spending on pharmaceuticals increased in 2014 by 13.1 percent, reaching $373.9 billion. This is the highest increase since 2001 when drug spending growth reached 17 percent.

According to the report, the most significant driver of medication spending was not the newly-insured individuals under the Affordable Care Act, but spending on specialty medications. These include treatments for diseases like hepatitis C, cancer, diabetes, and multiple sclerosis. The report indicates that spending on specialty medications increased in 2014 by 26.5 percent to $124.1 billion. Spending on specialty medications relating to hepatitis C alone accounted for a large portion of the increase, with over 161,000 patients starting hepatitis C treatment in 2014. This number is a nearly tenfold increase in individuals seeking treatment, which can cost over $80,000 for one 12-week course of treatment.

These numbers likely are not surprising to those following the pharmaceutical industry, which saw a number of specialty medications come on the market in 2014. During that year, 42 new medications were launched, including 23 breakthrough therapies and orphan drugs, which is more than any other year since 2001. These recent innovations in such treatments have resulted in specialty medications accounting for one-third of overall medication spending. This data reinforces the prominence of specialty pharmaceuticals in the healthcare market.

The report also notes that Medicaid was a significant driver of the growth in retail prescriptions in 2014, increasing 16.8 percent and accounting for 70 percent of growth in retail prescription demand.

As drug spending continues to rise, two lawmakers, Rep. Elijah Cummings (D-Md.) and Sen. Bernie Sanders (I-Vt.), recently wrote to the U.S. Department of Health and Human Services Office of Inspector General (OIG) asking that it investigate “the alarming rates” at which the prices of generic drugs increased from July 2013 to December 2014. Price changes cited in their February 24th letter range from -8 percent to over 17,000 percent, and an analysis of data from the Centers for Medicare and Medicaid Services shows almost 10 percent of generic drugs doubled in price during the same time period.

The lawmakers noted that such increases have a significant effect on the Medicare and Medicaid programs, including making necessary drugs less accessible to beneficiaries, as well as a cumulative effect on federal payers. They requested that the OIG look at these increases and determine the overall impact to the Medicare and Medicaid programs, as well as whether the increases exceed the statutory inflation factor under section 1927(c)(2) of the Social Security Act, if it were applied to generic drugs. Currently, brand name drug manufacturers are required to pay rebates to Medicaid when drug prices increase faster than inflation, but this does not apply to generic drugs.

In an April 13th letter, OIG responded that it planned to examine quarterly average manufacturer price (AMP) for the top 200 drugs from 2005 to 2014 to determine if the AMPs exceed the statutory inflation factor, and to determine the amount of additional rebates Medicaid would have received if the inflation factor applied to generic drugs. Although OIG agreed to follow-up on a number of the lawmakers’ requests, the letter states that OIG does not currently have plans to “review the effect of generic drug price increases on the Medicare program.”

Latest Spike in Prescription Drug Spending Prompts OIG Investigation