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The Real Sources of Drug Price Increases



The first half of 2019 to the first half of 2020 saw 8.1% in drug cost increases when taking into account all drivers of drug costs, according to the Xevant Drug Trend Report. Historically, when we hear about drug price increases pharma and PBMs take much of the blame, but by digging a little deeper we find a number of other drivers that aren’t often highlighted.


Breaking Down the Drug Cost Increases


Though 8.1% may appear like a significant jump, the reality is that only 2.1% is due to overall drug inflation, and with a 3.6% inflation increase projected by the end of 2020 the numbers are right on par. Despite often cited as the culprits of cost increases, PBM negotiated discounts actually drove the cost of drugs down by 0.76%.


At a 4.3% increase, the findings conclude that the rising cost of prescription drugs is due in large part to the continued trend of moving toward biologics, with a preference for brand name speciality medications.


The Move Toward Biologics


The 2017 IQVIA Institute report reveals that biologic drugs only represent 2% of U.S. prescriptions, but equals out to 37% of net drug spending. That’s because curating biologic drugs is a complex, expensive process. Warwick Smith, Director-General of the British Biosimilars Association recently said in an interview that the shift from “Blockbuster” medicines (synthesised chemicals) to biologic medicine is more of a benefit for patients as they are grown from living cultures enabling treatment to target specific parts of the body. This can be more effective for treating specific diseases than the utilization of chemicals. The downside, Smith says, is that ‘they are more expensive than synthesized chemical treatments to produce, to research, and require greater monitoring of patients.’


While the upfront cost of biologics is significantly more expensive causing an upswing in drug spending, it’s important to focus on the long term effects: more effective treatments, an increase in medication adherence, and a lower cost in medical spending over a patient’s lifetime. For example; even though a new gene therapy from Novartis to treat spinal muscular atrophy carries a per treatment cost of $2 million may seem astronomical, most in the industry consider it fair when compared to the alternative costs associated with the lifelong total healthcare costs associated with managing this condition without the new medication therapy.


The Benefits of Clarity


Demand for product development and manufacturing cost transparency is increasing as tensions mount over rising drug costs in the U.S. And while pricing for biologics is rarely based on these factors, providing this data not only absolves PBMs and pharma but also sheds light on where the market is moving, helping to better prepare for the future.


Generic vs Brand Name Medication


From 2009 to 2019 the U.S. healthcare system saved over $2 trillion from generic usage, according to a 2019 IQVIA data report. However, even with seemingly noteworthy savings, a recent report from the Association of Accessible Medicines revealed that ‘generics are 90% of prescriptions filled yet only account for 20% of prescription drug spending.’


More generic products on the market will increase competition and result in lower drug costs. While pharmacists can help by providing more education for patients on generic vs brand name medications, the start of this shift can be led by PBMs, payers, and consultants with the help of companies like Xevant.


Xevant is a platform that provides real-time healthcare data analytics along with an arsenal of tools that can help PBMs, payers, and consultants identify generic versions early and shift from costly brand name medication before continuous use of high-cost brand name medications are established.


Better Outcomes with Real-Time Analytics


The current shift in the market is revealing that with higher patient adherence and biologic medications, the overall drug spend may initially show an increase but will ultimately result in better outcomes and a substantial decrease in medical cost.


Following this new path, PBMs must pivot from a focus on price discounting and rebating methodologies to honing in on patient outcomes. That’s where utilizing real-time healthcare data analytics is crucial.


Pinpointing specific areas to address requires access to detailed industry information that, up to this point, has only been accessible through antiquated reporting often released when it’s too late to make meaningful changes. Quick access to data analysis provides PBMs, payers, and consultants with information surrounding utilization, pricing, and outcomes allowing them to be proactive rather than reactive to market changes. For this, Xevant plays a vital role.


With automated daily claim information and insights in real-time, Xevant users constantly have their finger on the pulse of the market. Additionally, Xevant helps to streamline the process by identifying areas of improvement and savings the moment they are available. Whether you’re a PBM, TPA, or benefits manager, Xevant provides the data you need before you need it.


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