Prescription Drug Prices Set for 3.8% Increase in 2020

February 25, 2019 - Premier Inc. is projecting a 3.8 percent rate of inflation for prescription drug prices in plan year 2020, with non-acute care items comprising the majority of price increases.

While price increases are never welcome, Premier notes that that the estimate is 0.4 percent lower than its predictions for plan year 2019, indicating that efforts to control prescription drug spending may be producing a positive effect.

Inpatient pharmaceutical costs are expected to rise by 2 percent in the coming fiscal year, while other items, included on-patent, branded products that do not go through competitive bidding processes, will see a 5.3 percent hike.

On-contract products, including drugs in short supply, are projected to see a net decrease of 0.2 percent, the company added.

“These inflation figures prove that a competitive process for price negotiations with pharmaceutical manufacturers can make a tremendous difference for hospitals and health systems,” said Michael J. Alkire, Chief Operating Officer, Premier.

“By initiating competition between manufacturers for group purchasing contracts, we believe Premier is able to extract best-in-class deals and provide market-leading pricing for our members. Considering the financial pressures facing hospitals and health systems, such as diminishing reimbursement, these aggregate savings are essential to preserving margin and ensuring overall financial health.”

Premier’s anticipated rise in prescription drug trending is tracking only slightly slower than overall healthcare expenditures, according to the most recent data from CMS.

The nation’s healthcare spending is expected to rise by 5.5 percent annually until 2027, following a 4.4 percent increase in 2018.

By the end of the study period, the United States will be spending $6 trillion annually on care, equating to just under 20 percent of the national GDP.

CMS predicts that overall prescription drug spending will continue to grow at an average of 5.6 percent until 2027, largely driven by higher utilization, not just higher medication prices.

The federal government has made controlling prescription prices a top priority, and has proposed several different actions to reduce financial burdens on consumers.

One of the most drastic would be to eliminate drug rebates entirely by closing the safe harbor exemption for such arrangements under the Anti-Kickback Statute.

Pharmacy benefit managers (PBMs), drug manufacturers, and payers would instead be steered towards passing savings directly to consumers, said HHS Secretary Alex Azar earlier in February.

“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen. President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy,” said Azar.

“This historic action, combined with other administrative and legislative efforts on prescription drug pricing, is a major departure from a broken status quo that serves special interests and moves toward a new system that puts American patients first. Democrats and Republicans looking to lower prescription drug costs have criticized this opaque system for years, and they could pass our proposal into law immediately.”

The proposal builds upon the Administrations “American Patients First” blueprint for controlling prescription drug costs, which calls for different price negotiation strategies, the adoption of generics and biosimilars, and more value-based care programs across the prescription drug continuum.

HHS is also encouraging price transparency around drug costs to ensure consumers can make informed decisions about their prescription options.

Public outcry around price hikes for certain drugs, including insulin, have spurred payers, federal stakeholders, PBMs, and consumer groups to address the precipitous rise in out-of-pocket costs for patients.

The Health Care Cost Institute recently noted that the point-of-sale price of insulin doubled between 2012 and 2016, rendering the life-saving hormone financially unreachable for many diabetics.

High drug prices drive up overall per capita spending for patients, creating headaches for consumers, payers, and all stakeholders in between.

Addressing the inexorable rise of prescription drug prices is a high priority across the industry, and will be critical for ensuring that care remains affordable and accessible for American consumers.