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PBMs Forecast Higher Drug Costs

Kate Traynor

Two major pharmacy benefit managers (PBMs) predict that annual increases in the costs of prescription drugs will hover in the middle to high teens for the next several years.

Medco Health Solutions, in its 2003 Drug Trend Report, predicted that annual prescription drug costs for its clients will increase by 14–17 percent this year and then grow 14–18 percent annually through 2005. The annual drug trend report issued by ExpressScripts another large PBM, forecasted a 15.5 percent increase in drug costs next year and increases of 15.2–16 percent through 2007.

More specifically, ExpressScripts predicted that drug ingredient costs will more than double by 2007, costing $1,212.45 per member per year (PMPY), compared with $585.60 PMPY last year.

Nilay Shah, M.S., a medication-use policy analyst at the University of Wisconsin Hospital and Clinics who has reviewed both reports, predicted that factors such as an influx of new generic drugs could help limit drug-cost increases over the next few years.

"I think the trend may be more in the 12–15 [percent] range," Shah said—a level of increase he described as better than the PBMs had forecasted but still "bad enough."

"It's still higher than any other part of the health care setting," he added.

Both PBMs named drug price inflation—the increase in the average wholesale price, or AWP—as an increasingly important factor behind the growth in drug spending.

According to Medco, AWP increased by 33 percent last year compared with 2001, from 4.9 percent to 6.5 percent of total drug expenditures. This figure omits the effects of rebates, pharmacy discounts, and other offsetting measures used by the PBM to lower costs. Medco stated that such discounts resulted in a 5.5 percent increase in drug price inflation last year for the company's clients. The PBM estimated that drug price inflation will range from 5 to 7 percent through 2005.

Using a method that accounted for some discounts, ExpressScripts calculated that the annual drug-price inflation rate was 7.5 percent last year, the highest value ever reported by the PBM. The company estimated that inflation will be 5.5 percent each year from 2003 through 2007.

In their reports, both PBMs named specialty pharmaceuticals—mostly, injectable biotechnology products—as an important and growing component of drug costs. According to ExpressScripts, the number of prescriptions dispensed by the PBM's specialty care pharmacy nearly doubled from 2001 to 2002.

"More and more injectables are coming on the market," Shah said. "Some of them are take-home [products], some are clinic administered. How do you deal with it, in terms of managing their use?...They are so expensive."

Medco estimated that spending on specialty cancer and biotechnology drugs is increasing by 18 percent each year. The company said that it costs $18,000 per year, on average, to treat a patient with one specialty drug; treatment with some products costs up to $250,000 per year.

Shah said that both drug trend reports contained useful information but are difficult to compare because the PBMs used different methods to arrive at their somewhat different forecasts. He said administrators would likely find the ExpressScripts report, with its greater level of detail, more informative than the Medco report.

For example, Shah said, drug-benefit administrators could use ExpressScripts' PMPY costs for specific drug classes as a benchmark to determine whether the administrator's drug costs are in line with those of the PBM.

Shah said he would like the trend reports to better describe specific patient populations, which could help drug-benefit managers to more accurately extrapolate the figures to their own patient groups.

He also said it would be "somewhat useful" if the reports went into greater detail about the rebates that the PBMs receive from drug manufacturers. Specifically, he said, it would be useful to find out to what extent rebates are tied to volume purchases.

The 2003 budget act of Shah's state, Wisconsin, contains a provision authorizing the state's Department of Health and Family Services "to enter into prescription drug multi-state purchasing agreements and other agreements with prescription drug purchasers." Such agreements are designed by states to purchase prescription drugs in bulk, theoretically generating discounts similar to those negotiated by PBMs.

The act, S.B. 44, was sent to the governor's office July 3 and awaits his signature.