prescription medicines: costs in context -...

Prescription Medicines:Costs in Context

2018

2

Then Now

We are in a new era of medicine where breakthrough science is transforming care with innovative treatment approaches...

Medicines made of chemical compounds

Medicines treat broad diseases

Radiation and chemotherapy to treat cancer

Medicines made from living cells

Medicines targeted to specific patient based on genetic makeup

Immunotherapy that harnesses body’s own immune system to fight disease

CAR T-cell therapy

CRISPR

Prescription Medicines: Costs in Context www.phrma.org/cost

3

Treating people with one or more chronic condition consumes 90 cents of every dollar spent on health care.

…and enabling us to more effectively treat chronic disease, the biggest cost driver.


Prevalence and Spending by Number of Chronic Conditions (2014)

PER

CEN

TAG

E

Total population

Total expenditures

12%

41%16%

26%

31%

23%

10%

40%

Number ofchronic conditions

5+

3 – 4

1 – 2

0

Note: Total health care spending defined as the amount spent on all outpatient and inpatient health care services across all payers, including out of-pocket payments.

Health Care Spending by Number of Chronic Conditions (2014)

AVER

AGE

ANN

UAL

SPE

ND

ING

PER

PER

SON

IN D

OLL

ARS

Number of Chronic Conditions

Note: Total health care spending is defined as the amount spent on health care services across all payers, including patient out-of-pocket payments.

Other

Home health

Prescription

ED

Office and outpatient

Inpatient

Source: RAND Corporation

4

In the midst of this incredible progress, medicine cost growth is declining.


3.8%

1.5%

2016

2017

3.2%

1.9%

2016

2017

3.9%

0.6

2016

2017

Note: IQVIA data is reflective of retail and physician-administered medicine spending.

5

In fact, after discounts and rebates, brand medicine prices grew just 1.9% in 2017.

Source: IQVIA. Medicines use and spending in the U.S.: a review of 2017 and outlook to 2022. Published April 2018. Accessed April 2018.*Includes protected brand medicines only (ie, brand medicines without generic versions available in the year indicated).**Net price growth reflects impact of off-invoice rebates and discounts provided by manufacturers.

Estimated Net Price Growth**Invoice Price Growth


6

Spending on retail and physician-administered medicines continues to represent just 14% of spending…

8%

12%

14%

18%13%

4%

31%

Admin Costs

Home Health & Nursing Home Care

Prescription Medicines

Physician & Clinical Services

Other**

Dental Services

Hospital Care

U.S. Health Care

Spending, 2015

Source: PhRMA analysis of CMS National Health Expenditures data, Altarum Institute study and Berkley Research Group study.**Supply chain entities- stakeholders involved in bringing medicines from manufacturer to patient, including wholesalers, pharmacies, PBMs and healthcare provider locations.


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Dental Services

Other

Prescription Medicines

Government Administrative Costs

Physician and Clinical Services

Home Health and Nursing Home Care

Hospital Care12%

32%

34%

2%3%

…and a small share of total Medicaid spending…

TOTAL$545B

Note: Prescription drug data is net of rebates and includes both retail and non-retail drugs. Data used were predominantly derived from CMS 64 reports. Pre-rebate expenditures were tabulated using FY2015 CMS State Drug Utilization data files and CMS brand/generic indicators for each NDC.

Source: CMS National Health Expenditure Data and Altarum Institute.


11%

7%

8

…and is projected to grow in line with health care spending through next decade.

Note: Total retail sales include brand medicines and generics.Source: Centers for Medicare & Medicaid Services (CMS).


Perc

ent A

nnua

l Gro

wth

Rat

e

Health Care Retail Prescription Medicines

9

At the same time, growth in other health care services will be 5 times total medicine spending growth through next decade.

Source: CMS National Health Expenditures Report, December 2017Source: Altarum Institute. "Projections of the prescription drug share of national health expenditures including non-retail." May 2018.

Other Health Care Services(10-year cumulative increase: $1,958 billion)

Total Prescription Drug Expenditures(10-year cumulative increase: $401 billion)


Projected Cumulative Growth in Spending (in millions), 2017–2026

5x

10

Insurers and PBMs have a lot of leverage to hold down medicine costs.

Negotiating power is increasingly concentrated amongfewer pharmacy benefit managers (PBMs).

Top 3Market Share:

71%

22%

25%

24%

29%

OptumRx (UnitedHealthGroup)

CVS Health (Caremark)

Express Scripts

All Other


Insurers determine:

FORMULARYif a medicine is covered

TIER PLACEMENTpatient cost sharing

ACCESSIBILITYutilization management through prior authorization or fail first

PROVIDER INCENTIVESpreferred treatment guidelines and pathways

Source: Drug Channels Institute, February 2018.

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In fact, more than 1/3 of the list price is rebated back to payers, the government and other stakeholders in the supply chain.


Rebates, discounts, fees and other price concessions have more than

doubled since 2012

Brand companies retain just 63% of list price spending on medicines

62.6%18.5%

12%

6.9%

Brand CompaniesMarket Access Rebates and DiscountsStatutory Rebates and FeesSupply Chain Entities

Source: Berkeley Research Group. Fein AJ; Drug Channels Institute

2012 2017

$74B

$153B

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Hospitals also benefit from misaligned incentives in the supply chain.

An analysis found that 320 hospitals mark up some medicine prices at least 1000%

Nearly one in five hospitals marks up medicine prices to 700% or more of their acquisition cost

If a hospital purchased a medicine for $150, a 700% markup could result in patients being billed $1,050 for that medicine

Amount paid by hospital

Amount billed by hospital

$1,050

$150

1000%

Source: The Moran Company. Hospital Charges and Reimbursement for Medicines: Analysis of Cost-to Charge Ratios. September 2018.

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90% of all medicines dispensed in the United States are generics.

Source: IMS Health.Source: Generic Pharmaceutical Association, “Generic Drug Savings in the U.S. Report,” 2018.

$1.79trillion 10-year savings

(2008-2017)


90%88%

72%

52%

33%43%

19%

1984 1990 1996 2002 2008 2014 2017

14

Generics cost a fraction of the price of the initial brand medicine.

Note: Figures represent the average annual price for 30 pills of the most commonly dispensed form and strength. "Then” price represents the average price in the year prior to generic entry. “Now” price represents the average price in December 2017.Source: IQVIA Institute for Human Data Science analysis for PhRMA. May 2018.

-92%

-93%

-98%

-96%

-98%


Medicine

DIOVAN VCT®

Hypertension (2010)

LIPITOR®

Cholesterol (2010)

PLAVIX®

Blood Thinner (2011)

SEROQUEL®

Schizophrenia (2010)

ZYPREXA®

Schizophrenia& (2010)Bipolar Disorder

% Change

Brand Name THEN Generic NOW

$87

$85

$166

$87

$393

$7

$6

$4

$2

$17

15

Competition from generics and biosimilars is expected to reduce U.S. brand sales by $105 billion from 2018 to 2022.

2013-2017: $74 BillionProjected

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

2018-2022: $105 Billion

-$17

-$12-$15 -$14

-$16

-$26

-$19 -$18-$17

-$26

Source: IQVIA. Medicines use and spending in the U.S.: a review of 2017 and outlook to 2022. Published April 2018. Accessed April 2018.

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At the same time, innovator companies race to be the first to market with a new medicine.

Time Between Approval of First and Second Medicines in a Therapeutic Class Has Declined Dramatically

Competing brands generally launch within years

10.2years

1970’s 2.3years2005-2011


Source: Tufts Center for the Study of Drug Development (CSDD).

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For example, American patients have access to cancer medicines about two years earlier.

The competitive U.S. market provides patients with access to innovative medicines faster.

22

15

10

10

10

10

10

21

17

17

15

13

7

4

0 5 10 15 20 25 30 35 40 45 50

Taiwan

Australia

Spain

Italy

United Kingdom

France

Germany

Months

Delay in cancer medicine approval and reimbursement, 2010-2014

Delay Between U.S. Approval and Country-Specific Approval Delay Between Country Approval and Reimbursement

17

23

25

27

32

43

14


Source: PhRMA analysis of IMS Consulting Group “Patient Access to Innovative Oncology Medicines Across Developed Markets.” June 2016

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Nearly 90% of newly launched medicines from 2011 to 2017 were available in the United States, compared to just two-thirds in the UK, half in Canada and France, and one-third in Australia.

More medicines are available to U.S. patients.

Number of New Medicines Available by Country*(of 220 drugs launched 2011-2017)

Note: New Molecular Entities (NME) approved by the FDA. European Medicines Agency (EMA) and Japan’s Pharmaceuticals and Medical Devices Agency (JPMDA), and launch in any country between 2011-2017Source: PhRMA analysis of IQVIA Analytics


USA Germany UK Japan Canada France South Korea Australia New Zealand China

192

156147

108 106 106

80 73

3217

87%

71%67%

49% 48% 48%36% 33%

15% 8%

For example, of the 14 newdiabetes medicines

launched over the period,only one

was available in France.

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Spending on prescription medicines is a small percentage of total health care spending around the world.

Note: Total health care spending includes hospital care, physician and clinical services, home health and nursing home care, government administration and net cost of private health insurance, dental, home health and other professional services as well as durable medical equipment.Source: OECD Health Statistics Database (accessed February 2016); Altarum Institute, 2015, A ten year projection of the prescription drug share of national health expenditures including non-retail.

Prescription Medicines as a Percentage of Total Health Care Spending

14% Canada

14% USA

11% UK

13% France

13% Germany

15% Italy

12% Spain

16% Japan

10% Australia

16% Korea


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Patients in the United States are facing rising out-of-pocket costs and other barriers to care.

The use of four or more cost-sharing tiers is becoming more common on employer plans

Percent of plans with deductibleson prescription drugs

23%

52%

2012 2017

Source: PWC, Health and Well-Being Touchstone Survey, various years


2004 2006 2008 2010 2012 2014 2015 2016 2017

3%5%

7%

13% 14%

20%23%

32%

44%

21

Cost sharing for nearly 1 in 5 brand prescriptions is based on list price

More than half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price

And too often negotiated savings do not make their way to patients.


44%

26%

29%

55%

Copay

Deductible

Coinsurance

Source: IQVIA. May 2018.

22

Certain commercially insured patients could save $145 to more than $800 annually.

Sharing negotiated discounts with patients would increase premiums about 1%.

NOTE: Plan cost includes medical and pharmacy claims*HDHP = High-deductible health plan


Change in Plan Costs with Shared Rebates

PLAN TYPE

Traditional PPO Copay HDHP* Coinsurance HDHP

Net Plan Per Member Per Month Spend $433.91 $374.41 $372.89

Change in Plan Costs $ $0.82 $2.62 $3.84

Change in Plan Costs % 0.2% 0.7% 1.0%

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And

20%of revenues are reinvested

into R&DNOTE: The remaining 57% share of business R&D spending is conducted by other industries, including subsectors of the machinery sector, the computer and electronics products sector, and the electrical equipment, appliance, and components sector.Source: Research!America report and PhRMA analysis of National Science Foundation data.

Industry invests 17% of all domestic research and development funded by U.S. businesses

Invested about

$90 Billion in R&D in 2016


Biopharmaceutical companies use today’s revenues to invest in tomorrow’s treatments and cures.

Phamaceuticals & Medicines

Software Automobiles Aerospace Computer Systems Design

Scientific R&D Services

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On average, it takes more than 10 years and $2.6B to research and develop a new medicine.

BETWEEN 1998 AND 2014

Unsuccessful Attempts

Successful Attempts

123Alzheimer’s Disease

96Melanoma

167Lung Cancer

4Alzheimer’s Disease

7Melanoma

10Lung Cancer

Just

12% of drug candidates that enter clinical testing are approved

for use by patients

Source: Tufts Center for the Study of Drug Development (CSDD).Source: Pharmaceutical Research and Manufacturers of America (PhRMA), “Researching Alzheimer’s Medicines: Setbacks and Stepping Stones,” 2015.Source: Pharmaceutical Research and Manufacturers of America (PhRMA), “Researching Cancer Medicines: Setbacks and Stepping Stones,” 2014.


We need a public policy environment that recognizes and rewards risk taking.

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PROMOTE VALUE-DRIVEN HEALTH CARE• Remove barriers restricting information companies can share with insurers.• Reform regulations discouraging companies from offering discounts tied to outcomes.• Modify Medicaid best price requirements.

MODERNIZE THE DRUG DISCOVERY AND DEVELOPMENT PROCESS• Modernize the FDA to keep pace with scientific discovery and increase efficiency of generic approvals• Promote and incentivize generic competition.

EMPOWER CONSUMERS AND LOWER OUT-OF-POCKET COSTS• Provide patients with access to negotiated rebates. • Address affordability challenges in the deductible.• Make more information on health care out-of-pocket costs and quality available to patients.

IMPROVE TRADE AGREEMENTS• Enforce existing trade agreements.• Ensure new trade agreements recognize value of innovative medicines.


ADDRESS MARKET DISTORTIONS• Address burdensome regulations that distort programs like the 340B Drug Pricing program.

Collectively, these market-based reforms can make medicines more affordable and accessible.

prescription medicines: costs in context -...

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