In the realm of healthcare costs, understanding and managing drug trend is crucial for all stakeholders, including pharmacy benefit managers (PBMs), consultants, employers, and health plans.
With mid-year plan reviews coming up, it’s the perfect time to drill down into what drove trend in the first quarter of 2024 and what data-driven changes you should consider to mitigate trend increases going forward.
But what exactly is drug trend, why is it important, and how can you decipher whether your (or your client’s) trend rate is good or bad? Let’s delve into these questions.
What is Drug Trend and Why is it Important?
Drug trend represents the percentage change in per member per month (PMPM) costs from one period to another (e.g., year over year, quarter over quarter, etc.). It serves as a vital indicator for monitoring shifts in drug costs over time so you can determine if the cost management strategies you have in place are effective or if you need to consider evolving your benefit design.
What Constitutes a Good Drug Trend Rate?
In general, favorable trend rates are single-digit percentages or, ideally, negative percentages.
For instance, a 5 percent trend rate signifies reasonable stability in costs. A negative trend rate, such as negative 3 percent, indicates you’re doing an excellent job of lowering pharmacy costs from one period to another.
How is Drug Trend Calculated?
Despite its technical nature, calculating drug trend is pretty straightforward. Let’s break it down using some hypothetical numbers:
| Number of eligible members | Total drug costs | Number of months | |
| Current period | 4,000 | $2,500,000 | 12 |
| Previous period | 3,800 | $2,100,000 | 12 |
Determine PMPM costs by dividing total plan-paid drug costs by the number of eligible members and the duration of the period (e.g., 12 months for calendar year data).
| Equation | PMPM costs |
| 2,500,000 ÷ 4,000 ÷ 12 = | $52.08 |
| 2,100,000 ÷ 3,800 ÷ 12 = | $46.05 |
Subtract the PMPM costs from period one from the PMPM from period two, then divide the difference by the PMPM from the previous period.
| Equation | Trend rate |
| (52.08 – 46.05) ÷ 46.05 = | 13.1% |
Understanding Fluctuations in Drug Trend Rates
If your drug trend increased, you need to find out why. To do that, you need to examine five primary trend drivers and figure out which had the highest increase:
- Utilization: The number of prescriptions filled within a population over a specific period.
- Drug mix: The composition or variety of drugs utilized within a population – generic vs. brand, specialty vs. non-specialty, higher-cost generic vs. lower-cost generic, and higher-cost brand vs. lower-cost brand.
- Price inflation: The rate at which drug prices rise each year. For example, in 2024, the median increase was 4.5 percent.
- Drug discounts: The percentage discount off the Average Wholesale Price – or AWP. These discounts vary by channel (retail, mail, specialty, etc.) and by drug type (brand, generic, and specialty).
- Intensity: Changes in the quantity (e.g., number of pills filled) of the same medication utilized by members for each reporting period.
For example, if the data tells you the primary driver is drug mix, then you’ll want to determine what high-cost drugs are being utilized more this year than the year before.
- What high-cost drugs are being utilized more this year than the year before?
- What is the cost of these new drugs?
- How many plan members are taking these drugs?
- How many more scripts were filled this year than last year?
Armed with this data, you can make an informed decision on the next best course of action. Are there more stringent utilization management criteria to consider? Should you analyze the formulary placement of specific drugs? What steps can you take now to lower trend or keep it from rising further?
How Xevant Can Help
Comprehending trend rates and their drivers is critical to navigating the complexities of pharmacy cost management. When you monitor drug trend in near real time – like you can with Xevant – you can identify cost-saving opportunities and implement targeted interventions sooner. Tools like TrendLogic or our Executive Dashboard proactively identify cost drivers and take corrective action promptly before costs increase too rapidly.
For additional information on drug trend, download our 2023 Drug Trend Report. We completed a comprehensive analysis – using data from our book of business and across the industry – and identified some key drivers of drug trend to keep top of mind in 2024 and beyond.
How can you make data-driven decisions to proactively keep drug trend in check? Ask us.
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