For most Americans, $50,000 is a lot of money. Six out of 10 households in the U.S. make less than that amount per year (based on adjusted gross income). But, for a growing number of Americans, that's how much -- or more -- was spent on their prescription medications last year.
Leading pharmacy benefits manager (PBM) Express Scripts (NASDAQ:ESRX) recently released its 2016 Drug Trend Report. The company found that 870,000 Americans had prescription medication costs of at least $50,000 last year -- up 35% from just two years ago. Statistically speaking, it's pretty likely that you personally know some of these people. But despite these staggering numbers, there's actually some good news.
Big costs, small number of patients
Express Scripts' research found that less than one-third of 1% of the U.S. population accounted for 21.3% of total pharmacy costs in 2016 -- about $80 billion. Around two out of every million Americans generated prescription spending of $1 million or more last year.
Despite these really low numbers of individuals with really big prescription drug costs, Express Scripts executive Glen Stettin stated that most Americans probably know someone in this category. Stettin said that pretty much everyone in the U.S. is "on a first-name basis with at least one other person -- a relative, friend, or colleague -- who has annual drug costs that are nearly the same amount as the median U.S. household income."
Nearly half of those with annual prescription spending of $50,000 or more were Baby Boomers (ages 53 to 71). One quarter, though, were between the ages of 34 and 52.
What about the rest of the U.S. population? Nearly one-third (32%) had no prescription drug costs at all in 2016, and for almost 83%, the costs were less than $1,000. What we're seeing appears to be a tightened-down version of the Pareto principle, which observes that in many situations, around 80% of outcomes are driven by 20% of causes.
What's costing so much?
In 2014, the two biggest drivers of super-high prescription drug spending were compounded medications and hepatitis C drugs. It's a much different story today. Express Scripts reported that spending on compounded medications "virtually disappeared" from the prescription lists of patients with high spending levels due to the emergence of safer and lower-cost alternatives.
As for hepatitis C drugs, their costs dropped by 34% in 2016. Gilead Sciences (NASDAQ:GILD) led this change with its launch of Sovaldi in late 2013. Sovaldi cured most hepatitis C patients. The big biotech followed up with more powerful treatments, as did other drugmakers. As a result, the numbers of hepatitis C patients has declined markedly. Express Scripts found that utilization of hepatitis C treatments plunged more than 27% last year -- the biggest factor behind the disease being a much less significant factor in high prescription drug spending.
So what is driving prescription drug costs now? Three therapeutic categories account for more than 55% of total spending for patients with annual costs of $50,000 or more. At the top of the list is cancer, generating nearly 26% of total prescription spending. Overall oncology drug spending grew by 21.5% last year. Three drugs led the way: Celgene's (NASDAQ:CELG) Revlimid, and two chemotherapies -- capecitibine and Novartis' (NYSE:NVS) Gleevec.
The second major category was multiple sclerosis (MS), which generated 18.3% of spending for the $50,000-plus group. Coming in third was inflammatory conditions, such as rheumatoid arthritis and psoriasis, which accounted for 11.6% of spending for patients with $50,000 or more in annual drug costs. Among all patients, though, inflammatory conditions ranked as the largest single therapy class in total prescription drug spending.
The good news
Fortunately for the patients, most of those high costs weren't borne directly by individuals themselves. Express Scripts reported that employers, insurers and government payers covered nearly 98% of total prescription drug costs. Among Americans whose prescription drug costs exceeded $50,000 last year, the average out-of-pocket cost was $2,156.
In other good news, some drugs' costs could be coming down. That's already happened in hepatitis C, with Gilead Sciences and others lowering prices. There are generic versions of Gleevec on the market, and the most-prescribed MS drug, Teva Pharmaceuticals' (NYSE:TEVA) Copaxone, also has generic alternatives. Naturally, that's not the case for all of the high-prices treatments. Celgene's Revlimid, for example, is projected to be the highest-grossing cancer drug in the world soon with sales of more than $14 billion by 2022.
Perhaps most importantly, much of the spending driving the higher costs is for treatments addressing rare and serious diseases for which there aren't many treatment options. Although $50,000 is definitely a lot of money, most of the patients whose lives are improved as a result of these drugs probably consider it money well spent.
Keith Speights owns shares of Celgene, Express Scripts, and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool owns shares of Express Scripts and has the following options: short October 2017 $86 calls on Gilead Sciences. The Motley Fool has a disclosure policy.