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Prescription Drugs Make Up About A Quarter Of All Health Care Costs

February 12, 2019

Prescription drugs have become the biggest expense category in health care at 23.3 percent, according to national statistics. Medicine costs make up more of the total health care pie than staying in the hospital, which makes up 16.1 percent of medical costs.

Pharmacy costs are growing at an unsustainable rate, Mark Cook, of Blue Cross Blue Shield of Michigan, and Dominick Pallone, of the Michigan Association of Health Plans, told the House Health Policy Committee during presentations in its organizational meeting Thursday.

“Sixty percent of Americans use at least one prescription drug annually,” Cook said. “Prescription drug costs now account for nearly 28 percent of our overall costs. It is 23 percent nationally, but for us, it is 28 percent. And they are the single largest expense to the enterprise. Costs for brand-name drugs have risen 232 percent since 2008, obviously far outpacing inflation. Michigan drug spending and high-cost specialty medications increased by 12 percent in 2017 alone. Specialty drugs account for 1 percent of prescriptions filled, but over 40 percent of our total pharmacy payments. These specialty drug costs are going to continue to climb.”

Cook listed the 12 most expensive drugs of 2018. Luxturna, a one-time treatment for genetic retinal disease, was listed at $850,000. The annual cost for Exondys 51, for Duchenne muscular dystrophy, comes to $800,000 and the price of Ravicti, for urea cycle disorder, is $790,000.

Some of the specialty drugs that are “in the pipeline” of development, he said, are “very scary in terms of the costs that we are going to be putting on the system.”

“There’s good value for folks that need that type of coverage, but we are all going to have to take a public policy look at how we are going to pay for that going forward,” Cook said.

Pallone said part of the reason prescription drugs have become the biggest expense in medical care is that hospitals and doctors have worked to constrain costs there, and they deserve credit for it.

“Nationally, prescription drug spending is starting to slow, but it is still at a pace that is far outpacing anything else we see,” Pallone said. “We are at 6 percent growth compared to previous increases. The previous two years, the average was 12.5 percent. As you can see, what is driving the cost is branded drugs.”

Rep. James Lower (R-Cedar Lake) asked if over-utilization of drugs is a part of what is fueling the increase. Cook answered yes, but Lower said later he didn’t have specific proposals in mind on how to address that issue. It might be more of an awareness issue, he said.

“I think in our society, a lot of people don’t realize that if a doctor says, ‘well, this might help you, if you take this supplement,’ I think a lot of folks don’t realize, you can say no. You can say, no I’d rather not,” Lower explained.

On the issue of over-utilization, Cook said there is a federal rule pending which would require television ads for prescription drugs to include the price. He said he believes that would have “dampening effect” on over-utilization, once people realize the drug being advertised might have a heavy price.

“We, alone with New Zealand, are the only two countries in the world that allow prescription drug advertising on television. And I think that should tell you something right there,” Cook told the committee.

Lower said he would consider a ban on such ads.

Health Policy Chair Hank Vaupel (R-Fowlerville) said the presentations gave him some ideas for possible future legislation that emphasizes preventative programs.

He’s already introduced HB 4154, which would require pharmaceutical companies that hike prices to submit an annual report to the state. It’s a re-introduction of legislation Vaupel offered last year.

“It requires drug manufacturers to actually give their data on what goes into the cost of the drugs, and then what their price is, and then how the price to the consumer is determined,” Vaupel said. “. . . Nobody can tell you how the prices are determined. Or nobody will tell you.”

His bill would require that companies submit their pricing strategies to the state, which would post those reports online for the public.

He noted that the price of prescription drugs often varies depending on whether you have insurance and which insurance company you have.

“There seems to be no rhyme or reason to it. And what the transparency bill is trying to do is put some rhyme and reason into how the pricing is arrived at,” Vaupel said.

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