U.S. drug spending outpaced inflation once again in 2016, though the phenomenal – and concerning – rate of growth appears to be tapering off.
That’s according to a new report by QuintilesIMS Institute, which did its best to break down the complex pharmaceutical supply chain with all its rebates and feedback loops.
Based on 2016 invoice prices, the authors found domestic spending on medicines had increased by 5.8 percent to $450 billion. Once the standard rebates and price concessions by manufacturers were factored in, net spending on prescription drugs totaled around $323 billion — up 4.8 percent from 2015.
That’s half the growth registered in the previous two years. But before anyone pops the champagne, figures are still historically high.
At $323 billion, net spending on drugs in the U.S. exceeds the projected 2017 gross domestic product (GDP) of South Africa, a country of around 55 million people.
Put another way, the U.S. paid more for prescription medicines in 2016 than the next five biggest spenders combined; China ($116.7 billion), Japan ($90 billion), Germany ($43.1 billion), France ($32.1 billion), and the United Kingdom ($27 billion), according to data from an earlier global report from QuintilesIMS.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Where is it all going?
Unsurprisingly, at least half of the spending increase comes from medicines approved in the past two years. They include major franchises in cancer, autoimmune diseases such as multiple sclerosis, HIV, and diabetes. And there are many more waiting in the wings.
While 2016 was a meager year for new drug approvals, the biopharma pipeline is considered robust. According to the report, some 2,346 novel products are now in late-stage development (Phase 2, Phase 3, or undergoing regulatory review) in the United States alone.
Some 37 percent of those late-stage candidates are specialty medicines, an increasingly expensive category of drugs. In 2007, specialty medicines were responsible for 21.8 percent of spending; they now account for 39.6 percent on an invoice price basis.
If you’ve read this far, there was some good news in the report, titled: Medicine Use and Spending in the U.S. – A Review of 2016 and Outlook to 2021.
Competition among manufacturers is becoming more intense (we’ve seen this play out in the hepatitis C market), forcing prices down. The authors also noted more push-back from payers in regards to price increases.
For example, net price increases for protected brands are expected to increase 2-5 percent over the next five years. Yet the invoice prices will grow at a rate of 7-10 percent. Why this disconnect?
“This reflects additional pressure and influence by payers on the pricing and prescribing of medicines, as well as changes in the mix of branded products on the market,” the report authors state.
All told, QuintilesIMS expects net total drug spending in the U.S. to increase a modest 2-5 percent each year until 2021, reaching $375-405 billion.
Those projections closely follow last year’s report, which estimated that U.S. spending would reach $370-400 billion in 2020. The annual growth rate has been downgraded, however, from 4-7 percent year-on-year increases.
Photo: gerenme, Getty Images
