Washington Report: Innovation, Coverage, and Costs

May 31, 2013


Jill Wechsler
Recent headlines about declining US spending on prescription drugs may be good news for consumers and payers, but they also fuel concerns about inadequate care and uncertain funding of pharma R&D. Total outlays on medicines in 2012 dropped for the first time, down by 3.5 percent on a real per capita basis to $325.8 billion, according to a recent analysis by the IMS Institute for Healthcare Informatics. The main reasons: more generic drugs came to market and fewer patients saw doctors due to a mild flu season and increased out-of-pocket costs from high-deductible health policies and stiff coinsurance for specialty drugs.

Specialty soars

Even so, spending on new targeted therapies for small patient populations rose dramatically, from $1.3 billion in 2010 to $7 billion, an amount that accounts for almost two-thirds of all outlays last year on new brands. The trend reflects high prices for cancer therapies and orphan drugs, and comes with a price—literally—that is fueling loud complaints from patients and payers.

Cancer specialists recently lashed out at six-digit prices for chronic myeloid leukemia treatments, while exorbitant costs for new "ultra orphan" remedies have drawn fire from payers and patients. Last year, doctors at Memorial Sloan-Kettering Cancer Center in New York said they wouldn't prescribe Sanofi's high-cost colon cancer drug Zaltrap, prompting the company to offer 50 percent discounts to certain customers. Manufacturers have long claimed that they need high prices on new products to offset the millions spent on unsuccessful research, but critics counter that industry profits are excessive, and that R&D expenditures should not be borne by desperate patients.


Medicare Mismanagement
So far, most public and private healthcare programs are absorbing the cost of treating relatively few patients with serious rare conditions. But payers are scrutinizing drug cost-effectiveness more closely, anticipating that expenditures will soar as biopharma companies develop more new treatments for some of the 7000 identified serious rare conditions. These developments already are prompting insurers to limit drug benefits and are focusing attention on coverage and costs of Medicare Part D plans (see sidebar).