Express Scripts 2015 Drug Trend: not so bad in drug price escalation

Express Scripts, the US’ leading pharmacy benefit manager (PBM) has issued its annual Drug Trend Report for the past year, a closely watched analysis for both Express Scripts customers—insurance plans, employers and various government programs—as well as by the pharma industry, for whom the company is a major throttle on pricing and market access. And, although it's been a year of constant headlines on high drug prices, shady dealings with “captive” specialty pharmacies and heavy criticism from political leaders, the overall trend is not bad: an increase of 5.2% among Express Scripts' customers, roughly half of what it was in 2014. Call it the Sovaldi effect, which significantly rattled PBMs and payers in 2014, when that hepatitis C medication hit the market and singlehandedly bumped pharmaceutical spending by roughly $10 billion in a year. Now, with that drug facing multiple competitors, and with both the discounting that PBMs like Express Scripts won from Gilead Sciences, Sovaldi’s maker, and the patient management programs that Express Scripts runs, the drug’s effects have moderated.

Two important qualifiers to the data that Express Scripts publishes: most of it is in the form of “per member per year” (PMPY) averages, meaning a therapy’s cost is averaged across all Express Scripts’ covered lives in that year; and that the costs cover pharmacy benefits only, and not drugs dispensed in hospitals or clinics under a medical benefit. Drug “trend” is a combination of the drug’s cost and its utilization—more patients on a more expensive drug equates with higher PMPY cost.

For commercial plans that employed Express Scripts’ methods of managing drug costs (which includes, among other things, a National Preferred Formulary [NPF] that flat-out excludes 80 drugs from coverage, as well as programs to evaluate recommended courses of therapy, and patient consulting), the PMPY cost increase was as low as 3.3% for “tightly managed” plans, vs. 12.9% or “unmanaged” plans, according to the company. NPF alone is expected to save plan sponsors $1.3 billion in 2016.

But more of those savings appear to be up for grabs by Express Scripts’ customers. In mid-January, Express Scripts largest customer, Anthem Health, made a claim that it was owed $3 billion for savings that Express Scripts had accrued from plan management and manufacturer discounts but hadn’t passed on to the insurer; the dispute has dragged on into mid-March, and Express Scripts stock price has dropped 18% (as of March 16) since the Anthem claim was publicized. (Like many other PBMs, Express Scripts typically does not reveal its actual costs for drug reimbursement to its clients, as opposed to “transparent” PBMs that do so. The theory is that the more incentive it has to push down drug cost, the more its customers ultimately will benefit.)

Forecast in traditional and specialty

The Drug Trend Report includes a three-year forecast through 2018 of both “traditional” (i.e., non-specialty) and specialty therapy classes reimbursed under pharmacy benefits. To a limited extent, these forecasts serve as proxy for the dynamism of markets for the various therapy classes. For traditional drugs, the fastest-growing key categories will be diabetes (growing 16.6-18% per year) and skin conditions (11.1-21.2%); high cholesterol, heartburn/ulcer disease, and mental/neurological classes will all shrink.

In the specialty arena, by contrast, every class will grow for the key classes reported by Express Scripts. The fastest-growing will be inflammatory conditions, oncology, HIV and sleep disorders; because of the introduction of a new treatment for cystic fibrosis (Orkambi [lumacaftor/ivacaftor], from Vertex Pharma) approved in mid-2015, trend growth will be 58.2% this year, declining to 28.8% in 2018.

Generics and compounding

Two other results in the 2015 report are of note: even though generic drug pricing has been increasing in the past few years—and has been extraordinarily publicized by Turing Pharmaceuticals and its ex-CEO, Martin Shkreli—Express Scripts saw a 19.9% decrease in generic pricing between 2014 and 2015 (that is paired with a 16.6% increase for branded prices). “While news reports focus on a few outliers, payers should remain confident that, on the whole, generic medications continue to deliver significant cost savings,” says the company.

Another trend is the dramatic clampdown Express Scripts has performed on compounded pharmaceuticals cost. The company saw a slight increase in compounded costs—1.8%--but a dramatic drop—55.7%--in utilization, resulting in an overall trend of -53.9%. The basis for pricing compounded pharmaceuticals (which are formulated essentially for individual patients, by individual pharmacists, although under the 2013 Drug Quality and Security Act, bulk compounding can now be regulated). There have been reports that compounded prescriptions jumped by billions of dollars for the Tricare program of the U.S. Dept. of Defense; Express Scripts’ clients have apparently done better.

The full report is available here.