Prices Soaring for Specialty Drugs, Researchers Find

Prices Soaring for Specialty Drugs, Researchers Find


Even as the cost of prescription drugs has plummeted for many Americans, a small slice of the population is being asked to shoulder more and more of the cost of expensive treatments for diseases like cancer and hepatitis C,according to a report to be released on Tuesday by a major drug research firm.

The findings echo the conclusions of two other reports released last week by major pharmacy benefit managers, which predicted that spending on so-called specialty drugs would continue to rise.

The report, by the IMS Institute for Healthcare Informatics, also found that consumers’ use of health care — visits to the doctor, hospital admissions and prescription drug use — rose in 2013 for the first time in three years, mainly because of the improving economy, it said.

“Following several years of decline, 2013 was striking for the increased use by patients of all parts of the U.S. health care system,” Murray Aitken, executive director of the IMS Institute, said in a statement. He noted that the spike came before the Affordable Care Act, which has helped provide health insurance to millions of new customers, fully went into effect.

But even as consumers became more confident about spending money on health care last year, the report found that a divide is developing between those with medical conditions that can be treated with cheap generic drugs, and those with rare and often more serious diseases that can come with breathtaking price tags.

More than half of prescriptions cost patients, on average, less than $5 in out-of-pocket costs in 2013, and 86 percent of them were filled with generic medicines. Nearly a quarter of all prescriptions — 23 percent — required no out-of-pocket cost at all, an increase that the report’s authors attributed mainly to a requirement in the new health care law that contraceptive drugs be covered free.

On the other hand, those who need the costlier drugs paid disproportionately more. Only 2.3 percent of prescriptions accounted for 30 percent of all out-of-pocket costs, the report found.

Drug companies have increasingly turned to treatments for smaller and more complex diseases as sales of dozens of blockbuster drugs have collapsed in recent years in the face of competition by cheaper generic versions.

In 2013, drug companies debuted 36 new drugs, including 10 notable cancer treatments, the most in more than a decade, the report found. Other significant new drugs on the market included treatments for hepatitis C,multiple sclerosis and diabetes. Pharmaceutical companies began selling 17 drugs last year to treat so-called orphan diseases — those that affect fewer than 200,000 people nationwide.

“The new drugs coming to market are more specialized, and more tailored to smaller populations of patients, which tends to make them more expensive because fewer people are ultimately going to take them,” said Caroline F. Pearson, vice president at the health care consulting firm Avalere Health. More health plans, faced with more of these high costs, are shifting some of the burden to patients, she said.

In 2013, Ms. Pearson said, 23 percent of employer-sponsored health plans placed specialty drugs in their own group, or tier, in which consumers are asked to pay a percentage of the drug cost, rather than a set co-payment. In 2006, just 5 percent of employer plans had a specialty tier. The trend is likely to continue: In the new plans offered to individuals through the health insurance marketplaces, Ms. Pearson said, specialty tiers are “ubiquitous.”

The rising cost of specialty drugs contributed to a 3.2 percent increase in total prescription drug spending in 2013, to $329.2 billion, the IMS report found. In 2012, drug spending declined by 1 percent, driven by the arrival of several new generic drugs after the patent for the brand-name products expired. Fewer drugs lost their patent protection in 2013.

Other reports have also highlighted the growing influence of specialty medicines on total drug spending. CVS Caremark, a pharmacy benefit manager, reported last week that, among its clients, spending on specialty drugs increased by 15.6 percent in 2013, compared with spending on traditional medications, which grew by only 0.8 percent.

Express Scripts, another drug benefit manager, found that while growth in spending on specialty drugs was at its lowest point in six years — 14.1 percent — it is forecast to increase significantly. The country’s spending on specialty drugs will increase an additional 63 percent between 2014 and 2016, the company predicted.

Perhaps because of the improving economy, the IMS report also found that more patients were opting to visit the doctor, go to the hospital and fill prescriptions for drugs in 2013. Visits to specialists increased by 4.9 percent, the report said, and patients filled an average of 12 prescriptions a year, an increase of 2 percent over the previous year.

“When people are feeling less secure, they cut back on health care,” said Larry Levitt, senior vice president of the Kaiser Family Foundation, which has studied the correlation between the economy and spending on health care. “When they are feeling more flush, they start to return to the doctor and the pharmacy in larger numbers.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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