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Prescription Drug Trends. Sean Keehan, Senior Economist Office of the Actuary Centers for Medicare and Medicaid Services Middle Atlantic Actuarial Club September 17, 2009. Overview. Recent historical trends in prescription drug spending

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    1. Prescription Drug Trends Sean Keehan, Senior Economist Office of the Actuary Centers for Medicare and Medicaid Services Middle Atlantic Actuarial Club September 17, 2009

    2. Overview • Recent historical trends in prescription drug spending • NHE Prescription drug projections – process and results • Issues that will impact the future drug spending trend • Discussion and Questions

    3. Historical Prescription Drug Spending

    4. Definitions and Data Sources National Health Expenditure Accounts Definition: • The category of prescription drugs includes retail sales of human-use dosage-form drugs, biologicals and diagnostic products. The transactions to purchase prescription drugs occur in community pharmacies, grocery store pharmacies, mail-order establishments, and mass-merchandising establishments. Data Sources: • Census of Retail Trade • National Prescription Audit – IMS Health • Program data for Medicare, Medicaid, and other public programs

    5. Determining the Historical Trend Gross trend: • The estimate is benchmarked to the Census of Retail Trade, which is believed to be the most reliable source on retail drug sales • For years following the last census, IMS Health data is primarily used to determine spending growth Net trend: • Spending estimates need to be adjusted for rebates and intra-health system transfers For more information, see Smith, Cynthia, “Retail Prescription Drug Spending In The National Health Accounts,” Health Affairs (January/February 2004): 160-167.

    6. Growth in Prescription Drug Spending and National Health Expenditures (NHE), 1980-2007 Rx Growth NHE Growth Source: M. Hartman et al., “National Health Spending in 2007,” Health Affairs, Jan./Feb. 2009: 246-261.

    7. Why has growth slowed so much since 1999? • Strong growth in utilization of lower-priced generic drugs than for higher-priced brand-name drugs • Programs were created to encourage use of generics and discourage use of brands • Lower new drug introductions • Drug safety concerns

    8. NHE Prescription Drug Spending Projections

    9. NHE Projections Model • Contains four exogenous components • Population growth • Economy-wide price inflation • Medicare growth • Medicaid growth

    10. NHE Projections Model • Contains two endogenous components, determined by econometric models • Relative medical price inflation • Real per capita private personal health care spending

    11. NHE Projections Model

    12. Prescription Drug Spending Growth, 1980-2018 Source: A. Sisko et al., “Health Spending Projections Through 2018,” Health Affairs 28 (2009): w346 – w357 (published online 24 February 2009).

    13. Factors Accounting for Growth in Prescription Drug Spending Per Capita 1 We use the CPI for prescription drugs and medical supplies to represent prescription drug price growth. 2Utilization includes increases in treatment rates (# of users receiving treatment for a condition) as well as increases in treatment intensity (# of treatment days per year). As a residual, this factors also includes changes in therapeutic mix (shifts within a therapy class to higher or lower cost brands) and any errors in measuring prices or total spending.

    14. Drug Spending in 2008 • Projected to have continued to slow, from 4.9 percent in 2007 to 3.5 percent in 2008 • The slowdown is coming from utilization, which went from 2.7 percent in 2007 to 0.2 percent in 2008; most of the utilization declines came from people in private plans who were affected by the downturn in the economy • Price growth accelerated from a near-term low of 1.4 percent in 2007 (Wal-mart effect) to 2.5 percent in 2008

    15. Drug Spending in 2009 • Projected to be slightly higher than 2008 at 4.0 percent with small increases expected in price and utilization growth • Economic concerns are still a factor that dampen expected growth • PBM data for the first 2 quarters of 2009 generally show a small increase in spending growth for their books of business

    16. Drug Spending from 2010 to 2013 • Utilization increases expected because of the assumed recovery in the economy • Price growth is expected to flatten in 2012 and 2013 as a few top-selling brand-name drugs (ex. Lipitor) go off patent

    17. Drug Spending from 2014 to 2018 • Higher growth expected as the effect of new generics become smaller • Large increases in the generic dispensing rate in 2002 to 2007 cut spending growth by 2 to 3 percentage points each year • New drug approvals, the most uncertain part of our projection, are projected to increase and begin to add to spending growth in the last half of the projection period

    18. Issues that will impact the future drug spending trend

    19. Drugs losing patent protection • Over $63 billion in brand-name drug sales in 2008 are expected to lose patent protection over the next 5 years • Paragraph IV certification – an important section of the 1984 Hatch-Waxman Act that allows generic companies to ask courts to challenge enforcement of a patent; the first generic company to prevail in this type of lawsuit will receive market exclusivity of 180 days for their generic • When a drug loses patent protection, the most significant decline in spending comes the year after the patent loss

    20. Patent Expirations $ Billion Source: U.S. Food and Drug Administration

    21. Drug Pipeline • Innovation today is concentrated in biologic or specialty drugs; the category with the most development is oncology • These drugs would have high prices if approved • Many believe that it will be difficult to increase the number of drugs approved each year because recent safety concerns has made the FDA more cautious

    22. The Drug Development Process • Eight Stage Process – takes 10 to 12 years to complete • (1) Discovery Stage • (2) Preclinical Animal Testing • (3) IND filing • (4) Phase I of clinical testing • (5) Phase II of clinical testing • (6) Phase III of clinical testing • (7) Long-term animal studies • (8) New drug approval • Most cited cost estimate is $802 million (2000 dollars) but some have said this could be as much as $2 billion

    23. Other potential trend drivers • New or expanded indications for existing drugs • New dosage forms/new combination products • Conversions to OTC status • Use of pharmacogenomic testing approaches • Changes in disease prevalence • Prescribing practices/clinical recommendations

    24. Health Reform • Brand-name drugs would be half of the cost for Medicare beneficiaries in the donut hole • A pathway for bio-similars or generics for biologics would be established • Exclusivity period of 12 years (perhaps less) • Negotiation of drug prices?

    25. Concluding Thoughts

    26. “Forecasting drug spending growth is very difficult because changes in year-to-year growth are typically driven by extraordinary events where, for example, drugs in certain classes get pulled from the market and so utilization for the entire class falls off a cliff.”Ernst Berndt MIT January 2009

    27. Compared to recent years, growth in future drug prices will be …

    28. Compared to recent years, growth in future drug utilization will be …

    29. Future new drug approvals will be …

    30. Discussion / Questions