Image source: Pictures of Money via Flickr.

Medical cost inflation has been a sticking point of the consumer for years, but it really came to a head last month when privately-held Turing Pharmaceutical increased the price of a rare-disease drug that it had purchased in August, known as Daraprim, by nearly 5,500%. Eventually, under intense public pressure, Turing and its CEO relented on the price hike.

The step back, however, did little to appease consumers, Congress, or pharmacy-benefit managers, which act as the middleman between insurers and drug developers to negotiate favorable prices. Prescription drug costs have been rising somewhat out of control in recent years, with expectations in 2015, according to actuarial and consulting firm Milliman, that call for a 13.6% hike in prescription drug costs.

Why drug prices are soaring
Why such incredible prescription drug inflation? For starters, there aren't many checks and balances in place to stop drug developers from setting a high bar on pricing. Pharmacy-benefit managers, or PBMs, can always leave expensive drugs off their approved list, as could insurers, but they then risk angering their network or members who want access to these potentially life-saving medications.

Another problem is that Congress has little power to influence drug developers. If it decides to play hardball with drug developers, it's likely that these companies would cut jobs and/or move more their operations abroad, where labor costs and the cost of innovation is lower. The threat of job loss is often too great for Congress to consider acting against the industry.

Drug developers also count on bountiful profits in the United States to help subsidize their venture into emerging market countries, which probably couldn't afford U.S. drug price points.

Finally, the need to recoup losses derived from multiple failed clinical, preclinical, and discovery-stage studies usually necessitates an aggressive price point. Drug developers need to ensure they have enough capital to conduct additional research, protect their patents in court if necessary, and reward shareholders over the long run.


Image source: Pictures of Money via Flickr. 

Consumers are paying the most in these traditional drug classes
The result is that consumers are sometimes forced to spend a lot of money on prescription drugs. Some ailments, as you might imagine, impact consumers' pocketbooks more so than others. Today, we'll take a look at the traditional drug classes where consumers are spending the most money (on a per-member, per-year basis) according to the 2014 Drug Trend Report from America's largest PBM, Express Scripts (NASDAQ:ESRX). Keep in mind, we're not including specialty indications such as hepatitis C, oncology or multiple sclerosis, for example. We'll get to specialty therapy spending in an entirely separate article.

The report from Express Scripts examines a number of aspects of traditional drug use, including the utilization rate, the overall cost increase/decrease of drugs in the therapeutic indication, and the per-member-per-year, or PMPY, spend. Based on Express Scripts' data, these are the highest PMPY spend traditional therapy classes. 

1. Diabetes
Diabetes as the costliest traditional therapy (on a PMPY basis) is probably no huge shock here with the Centers for Disease Control and Prevention estimating there are 29.1 million people in the U.S. with diabetes and another 86 million in the prediabetic stage. PMPY spending was $97.68 -- about double the second-costliest drug class.

Image source: Boehringer Ingelheim.

Expansion within the diabetes category didn't have a lot to do with utilization, with unit demand rising by just 1.7% despite there being an estimated 8 million undiagnosed consumers in the United States. The real expansion happened because of new innovation within the space and the subsequent 16.3% average increase in price. The emergence of SGLT2 inhibitors -- which work in the kidneys by blocking glucose absorption, allowing the patient to excrete glucose through their urine -- played a substantive role in diabetes drug inflation.

Furthermore, with Eli Lilly's and Boehringer Ingelheim's SGLT2 inhibitor Jardiance demonstrating a cardiovascular event risk reduction in high-risk patients that've experienced a CV event previously in the EMPA-REG OUTCOME study, there's ample reason to believe pricing of this new diabetes drug class could rise even more.

2. High blood cholesterol
If there is a bright spot on this list for consumers, it's the high blood cholesterol category, which witnessed utilization drop by 2.9%, and average drug costs in this class fall by 3.9%, for a combined trend of minus 6.8%.

According to Express Scripts' statistics, about one in nine members in its network use a high blood cholesterol drug. However, slightly more than 80% of prescriptions are for generic therapies. Remember, we've witnessed the likes of Lipitor, the best-selling drug of all-time, lose patent protection this decade, and Crestor's patent expiration is looming next year.


Image source: Amgen. 

The downside? A new class of LDL cholesterol (the bad kind)-lowering drugs just hit the market and could wreak havoc on pricing with PBMs. Known as PCSK9 inhibitors, these are injectable drugs that target the PCSK9 protein and stop it from binding with receptors on the liver that are responsible for filtering the blood of LDL cholesterol. The two approved drugs in question, Praluent from Regeneron and Sanofi, and Repatha from Amgen, led to significant LDL cholesterol reductions in trials, but come with $14,600 and $14,100 annual wholesale costs, respectively.

3. Compounded drugs
On the other side of the spectrum, if you're looking for the worst example of price inflation among traditional drugs, look no further than compounded pharmaceutical products, which witnessed a 128% increase in average year-over-year costs. PMPY spend was $45.98, and it was the first year that compounded drugs appeared among the top 10 in traditional drug spending based on Express Scripts' data.

Image source: National Cancer Institute.

Why the abrupt price hike? According to Express Scripts you can blame legislation that passed in 2012 for the incredible inflation were witnessing. Instead of drug developers being able to remain opaque about pricing and roll the cost of a compounded therapy under the highest-priced ingredient, all ingredients now need to be priced out separately now. To compensate, we've been witnessing price points jump across the board, with the average cost per prescription to an Express Scripts member of $1,164!

Express Scripts notes that therapies designed to treat pain are the most commonly prescribed compounded therapies, with seizure medication gabapentin and muscle spasm therapy baclofen for multiple sclerosis being the most common ingredients by volume.

4. Pain/Inflammation
Within the pain and inflammation category, utilization rates were nearly flat (up 0.3%). But just as we saw with diabetes, new therapies are adding extra pressure to drug prices. Unit costs in the pain/inflammation category rose by 15.7% despite the generic fill rate coming in at a whopping 90.9%. Overall PMPY spending worked out to $36.06.

The culprit for the rise in pain/inflammation prices are new pain formulations that are abuse-resistant. These new formulations, such as Pernix Therapeutics' reformulation of pain therapy med Zohydro ER, have kept generic drugs out of the picture and allowed these newly refined pain therapies to boost pricing.

Although traditional drug classes do have the luxury of generic drugs keeping costs from shooting into the stratosphere, it's not as if Big Pharma has relinquished its hold on chronic conditions like diabetes, high cholesterol, or pain and inflammation just yet. Expect prices to fluctuate, and possibly rise further, as innovative new therapies are brought to market.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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