While the past decade has witnessed many healthcare stakeholders in the USA warning the pharmaceutical industry on pricing and overall expenditure, the past year has been among the most rancorous as HCV treatments dominated the headlines and a number of new oncology and orphan disease therapies took turns in the limelight. When coverage expansion initiated by the ACA is combined with the pricing debate, the pleas for healthcare expenditure growth tend to focus on pharmaceuticals. However, it seems that at least CMS has taken a clear position that the next decade of expenditure may indeed be very practical, particularly in light of what the system has historically tolerated over the past decade.
In a recent Health Affairs report1, CMS (Centers for Medicare and Medicaid Services) projected that in the years 2015, 2019, and 2023, overall USA health expenditure is expected to grow at 4.9%, 6.0%, and 6.3% respectively, compared to historical rates of 7.1%, 3.7%, 3.6%, and 5.6% in 2008, 2012, 2013, and 2014 respectively. As a subset of healthcare expenditures, drug spending is projected to grow at 6.4%, 5.4%, and 6.0% % in 2015, 2019, and 2023, having logged historical rates of 8.3%, 2.1%, 3.3%, and 6.8% in 2008, 2012, 2013, and 2014. Based on these figures, the report suggests that spending on pharmaceuticals is likely to continue to grow at a rate largely comparable to spending on all other healthcare goods and services, signaling an outlook of sustainable growth for pharmaceutical expenditure. Given the amount of pushback on pharmaceutical expenditure, both on pricing and utilisation, this projection may surprise many who would expect drug spending to be growing by leaps and bounds.
CMS identifies several interesting drivers for stable drug spending growth, some particular to the short term and others representative of longer-term trends. In the short term, one driver of 2013 drug spending growth is a reduced number of annual patent losses for major branded products. More significantly, the report singles out adoption of HCV therapies and coverage expansions under the Affordable Care Act as significant drivers of short term increases. Under ACA coverage expansions, plans with members enrolled via ACA-initiated insurance exchanges have shown a higher rate of use of specialty drugs and are expected to continue to do so, perhaps owing in part to the requirement that insurers provide coverage regardless of patients’ preexisting conditions. As specialty therapeutics represent significant portions of many pharmaceutical and biopharmaceutical portfolios, it is a promising sign that despite all the noise around the pricing, use, and restrictions placed on these therapies, CMS does not anticipate sizeable growth in expenditure on overall pharmaceutical expenditure over the next decade.
In the longer term, CMS anticipates that higher levels of disposable income across the country will allow for increased spending on pharmaceuticals. Although many US payers are increasing cost-sharing requirements to manage choice and patient decisions, the report suggests that this barrier will be addressed by a higher level of disposable income among US healthcare consumers. Second, CMS notes that clinical practice guidelines across therapeutic areas are increasingly encouraging earlier treatment, which is expected to propel drug spending throughout the next ten years. By urging earlier treatment, these guidelines effectively broaden eligible patient populations for pharmaceutical therapies, thereby improving patient outcomes and simultaneously driving pharmaceutical expenditure. Although earlier treatment is usually managed through first-line, generic therapies, an increased overall duration of therapy likely means lengthier second-line branded therapy utilisation as well.
Overall, CMS has painted a future of continued, though stable pharmaceutical expenditure growth. Importantly, this growth rate is in line with overall healthcare expenditure and mirrors other high-growth sectors that are driving economic recovery in the USA. Most notably, this sustainable growth projection incorporates important cost driver realities, including coverage expansion, specialty therapeutic use, and the general pricing trends observed over the past decade. Although payers will continue to decry these cost-driving variables, one important payer has already made it clear that the growth is not unusually large and likely sustainable.
1. Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison, Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz and John A. Poisal. National Health Expenditure Projections, 2013-23: Faster Growth Expected With Expanded Coverage And Improving Economy. Health Affairs, no. (2014). http://content.healthaffairs.org/content/early/2014/08/27/hlthaff.2014.0560.full.html
Theodore Schroeder is a Senior Analyst in CBPartners’ Pricing and Market Access practice.