A ARP PUBLIC POLICY INSTITUTE JUNE 2019 Rx Price Watch Report Trends in Retail Prices of Specialty Prescription Drugs Widely Used by Older Americans: 2017 Year-End Update Stephen W. Schondelmeyer PRIME Institute, University of Minnesota Leigh Purvis AARP Public Policy Institute Table of Contents ACKNOWLEDGMENTS ..............................................................................................................................................i EXECUTIVE SUMMARY .......................................................................................................................................... 1 INTRODUCTION...........................................................................................................................................................3 FINDINGS ........................................................................................................................................................................5 I. Specialty Price Trends for Most Widely Used Prescription Drugs...................................................5 II. Annual Trends in Price Changes for Most Widely Used Specialty Prescription Drugs by FDA Approval Process ..........................................................................................................................8 III. Twelve-Year Cumulative Retail Price Changes for Most Widely Used Specialty Prescription Drugs, 2006–17 ....................................................................................................................10 IV. More than 8 out of 10 Widely Used Specialty Drugs Increased in Price Faster than General Inflation in 2017........................................................................................................................... 11 V. Retail Price Changes for Most Widely Used Specialty Prescription Drugs by Manufacturer................................................................................................................................................14 VI. Retail Price Changes for Most Widely Used Specialty Prescription Drugs by Therapeutic Category ................................................................................................................................14 CONCLUDING OBSERVATIONS ........................................................................................................................... 16 APPENDIX A. DETAILED METHODOLOGY AND DESCRIPTION OF RETAIL PRICE DATA .... 17 APPENDIX B. THERAPEUTIC CATEGORY ACRONYMS ..........................................................................25 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE iii Figures Figure 1. Average Annual Specialty Drug Price Increase Is over Three Times Higher than General Inflation in 2017.............................................................................................................5 Figure 2. Rolling Average and Point-to-Point Changes in Retail Prices for Most Widely Used Specialty Prescription Drugs Greatly Exceeded Inflation from 2007 to 2017 ...............6 Figure 3. The Average Annual Price of Specialty Drugs Almost Tripled between 2006 and 2017....................................................................................................................................................7 Figure 4. The Average Annual Retail Price of Therapy for Specialty Drugs Is Substantially Higher than the Average Annual Retail Price of Therapy for Brand Name and Generic Drugs in 2017 ..................................................................................................................8 Figure 5. The Average Annual Cost of Specialty Drugs Would Be Nearly $50,000 Lower if Retail Price Changes Were Limited to General Inflation ...................................................9 Figure 6. Average Retail Prices Are Higher among BLA-Approved Specialty Prescription Drugs ..............................................................................................................................................10 Figure 7. The Average Annual Cost of Therapy Increased by More than 240 Percent for Widely Used BLA-Approved Specialty Prescription Drugs between 2006 and 2017.................................................................................................................................................. 11 Figure 8. Retail Prices Increased for More than 80 Percent of Most Widely Used Specialty Drugs in 2017 ................................................................................................................................12 Figure 9. Retail Prices for Three Widely Used Specialty Drugs Increased by More than 20 Percent in 2017........................................................................................................................12 Figure 10. Retail Prices for 10 Widely Used Specialty Prescription Drugs Decreased in 2017 ...14 Figure 11. Twenty-Five of 30 Drug Manufacturers Had Retail Price Increases That Exceeded the Rate of General Inflation in 2017 .................................................................. 15 Figure 12. All but Two Therapeutic Categories for Specialty Drugs Had Retail Price Increases That Exceeded the Rate of General Inflation in 2017...................................... 15 iv TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Executive Summary Retail prices for widely used specialty specialty medications. Such developments will prescription drugs increased substantially more lead to poorer health outcomes and higher health than general inflation in every year from 2006 care costs in the future. to 2017. Between 2016 and 2017, retail prices for 97 specialty prescription drugs widely OVERVIEW OF FINDINGS used by older Americans, including Medicare • In 2017, retail prices for 97 widely used beneficiaries, increased by an average of specialty prescription drugs increased by 7.0 percent. In contrast, the general inflation rate 7.0 percent. This average annual increase was was 2.1 percent over the same period. lower than the specialty drug price increases Specialty drugs treat conditions that often affect observed during the prior decade (i.e., 2008 older populations, such as cancer, rheumatoid to 2017), which ranged from 7.1 percent to arthritis, and multiple sclerosis. While there is 9.7 percent. no set definition for specialty drugs, the term • Specialty drug prices increased more than generally includes drugs that are used to treat three times faster than general inflation in complex and chronic conditions; that require 2017 (7.0 percent v. 2.1 percent). special administration and handling; or that require patient care management. Another notable • The average annual cost for a single specialty medication used on a chronic basis was almost characteristic is that they are among the most $79,000 in 2017. expensive drugs on the market, with prices that can reach hundreds of thousands of dollars per • The average annual cost for one specialty year. medication used on a chronic basis would have been $29,843 in 2017—almost $50,000 Increases in the retail price of specialty lower—if the retail price changes for these prescription drugs have a corresponding impact products had been limited to general inflation on the cost of drug therapy for the individual and between 2006 and 2017. for all other payers. In 2017, the average annual retail cost of prescription drug therapy for a single • In 2017, the average annual price of therapy specialty drug, based on the market basket used for specialty prescription drugs was almost in this study, was $78,781 per year. This average 12 times higher than the average annual annual cost was almost $20,000 more than the price of therapy for brand name prescription median US household income ($60,336). The drugs ($78,781 v. $6,798, respectively) and annual specialty drug cost was also more than over 215 times higher than the average annual three times the median income for Medicare price of therapy for generic prescription drugs beneficiaries ($26,200) and over four-and-a-half ($78,781 v. $365, respectively). times higher than the average Social Security • Retail prices for 27 chronic use specialty retirement benefit ($16,848). drugs that have been on the market since Notably, the average annual cost for one specialty the beginning of the study (i.e., between medication used on a chronic basis would have January 2006 and December 2017) increased been $29,843 in 2017—almost $50,000 lower—if cumulatively by an average of 226.4 percent the retail price changes for these products had over 12 years. In contrast, general inflation in been limited to general inflation between 2006 the US economy rose 25.1 percent during the and 2017. same 12-year period. If recent specialty drug price trends continue • In 2017, 82 percent (80 of 97) of the widely unabated, an increasing number of vulnerable used specialty prescription drug products Americans will be unable to afford necessary in the study’s market basket had retail price TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 1 increases that met or exceeded the rate of High prescription drug prices and price increases general economic inflation. translate into higher out-of-pocket costs, especially for consumers who pay a percentage of drug costs • Retail prices for 83 percent (25 of 30) of drug (coinsurance) rather than a fixed dollar amount manufacturers with at least one specialty drug product in the study’s market basket increased (copayment). Higher prices can also be passed faster than the rate of general inflation along to consumers in the form of higher cost (2.1 percent) in 2017. sharing, deductibles, and premiums. — Three drug manufacturers had average Drug prices also affect taxpayer-funded programs annual price increases for their specialty like Medicare and Medicaid. For example, the drugs of 15 percent or more during 2017— Medicare Payment Advisory Commission recently more than seven times the rate of general noted that high drug prices and price increases inflation in 2017. are driving Medicare prescription drug spending growth. Higher government spending driven by • All but 2 of the 21 therapeutic categories large price increases will affect all Americans in of specialty drug products had average the form of higher taxes, cuts to public programs, annual retail price increases of 5.0 percent of or both. greater—more than twice the rate of general inflation in 2017. Policy makers interested in slowing prescription drug price increases should focus on changes SPECIALTY PRESCRIPTION DRUG PRICES AND that produce long-term, sustainable effects. While PRICE INCREASES AFFECT ALL AMERICANS policy options should encourage meaningful Until recently, relatively few patients used pharmaceutical innovation, such options should be specialty drugs. However, there are strong balanced with the need for improved health and indications that a much larger share of the the financial security of consumers and taxpayer- population will use specialty prescription drugs in funded programs like Medicare and Medicaid. the future. This report shows that average annual This report is the latest in the AARP Public Policy increases in the retail prices of widely used Institute’s Rx Price Watch series. Separate reports specialty prescription drugs have consistently analyze price changes for widely used brand exceeded the general inflation rate. In addition, name and generic drug products. The series also the annual retail price associated with widely analyzes the price changes for an overall market used specialty drug products now far outstrips basket (i.e., brand name, generic, and specialty what many Americans earn in a given year. drug products combined) to reflect the overall market impact of drug price changes. 2 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Introduction AARP’s Public Policy Institute finds that average generic drugs widely used by older Americans retail price increases for specialty prescription experienced a 9.3 percent decrease.3 drugs widely used by older Americans, including Specialty drugs have never been precisely and Medicare beneficiaries, far outstripped the price consistently defined but generally include drugs increases for other consumer goods and services that are used to treat complex and chronic between 2006 and 2017. Specialty drug prices conditions; that require special administration have regularly increased much faster than general and handling; or that require patient care inflation over the past 14 years—the entire management. The definition of specialty period since the beginning of our report series prescription drugs used throughout this report on prescription drug prices in 2004.1 Between is a prescription drug that has one or more of 2016 and 2017, the average annual increase in the following characteristics: is administered by retail prices2 for 97 specialty prescription drugs injection; has a total average prescription cost greater than $1,000 per prescription; has a total (some are brand name and some are generic) average cost per day of therapy greater than $33 widely used by older Americans was 7.0 percent. per day; or is in a therapeutic class in which In contrast, the rate of general inflation in the US several other drugs in the class meet one or more economy was 2.1 percent in 2017. of the previous criteria (e.g., HIV drugs). Previous Rx Price Watch reports found that retail One of the most notable characteristics of specialty prices for brand name traditional (nonspecialty) drugs is their cost; specialty drugs are among the drugs widely used by older Americans most expensive drugs on the market, with prices experienced an 8.4 percent increase in 2017, that can reach hundreds of thousands of dollars and retail prices for traditional (nonspecialty) per year.4 Expenditures for this group of specialty 1 The AARP Public Policy Institute in its Rx Price Watch series provides reports with separate analyses of the price changes for three different segments of the pharmaceutical market: brand name, generic, and specialty drug products. These three market baskets are important because a different mix of drug manufacturers typically makes the drug products in each segment and the drug products are subject to unique market dynamics, pricing, and related behaviors. In addition, the Rx Price Watch series also reports the price change for an overall market basket (i.e., brand name, generic, and specialty drug products combined) to reflect the overall market impact of drug price changes. Some critics have argued that the brand name price index report alone overstates the effect of drug price changes on the overall prescription drug market. Those critics argue that an overall measure should include the effect of generic prescription drug price competition and the impact of generic substitution. This is precisely why the AARP Rx Price Watch series of reports also provides an overall market basket (including brand name, generic, and specialty drug products) to examine the price change impact for the overall prescription drug market. While this overall perspective is useful for those interested in understanding the industrial economics of the entire prescription drug market, consumers have proved to be considerably more interested in the price trend for the specific products that they are taking as an individual rather than all drug products on the market. In addition, separate analyses of the different market segments (i.e., brand name, generic, and specialty drug products) is important because they represent very unique and distinct segments in the prescription drug market and they provide an indication of policy changes that may be warranted in the various market segments. Previous reports from this series are available on the AARP website at http://www.aarp.org/health/medicare-insurance/info-04-2009/rx_watchdog.html and http://www.aarp.org/rxpricewatch. 2 The retail prices used in this report are derived from Truven Health’s MarketScan® Commercial Database and MarketScan® Medicare Supplemental Database (Truven Health MarketScan® Research Databases). The prices reflect the total price for a specific prescription that a pharmacy benefit manager (PBM) bills to a specific health plan for consumers enrolled in employer-sponsored or government-sponsored (i.e., Medicare or Medicaid) health plans and not simply the out-of-pocket cost (such as the copay) that a consumer would pay at the pharmacy. These amounts may or may not reflect what the PBM paid the pharmacy or the usual and customary price that a pharmacy would charge a cash-pay consumer for the same prescription. 3 Stephen W. Schondelmeyer and Leigh Purvis, “Rx Price Watch Report: Trends in Retail Prices of Brand Name Prescription Drugs Widely Used by Older Americans, 2017 Year-End Update,” AARP Public Policy Institute, Washington, DC, September 2018; and Stephen W. Schondelmeyer and Leigh Purvis, “Rx Price Watch Report: Trends in Retail Prices of Generic Prescription Drugs Widely Used by Older Americans, 2017 Year-End Update,” AARP Public Policy Institute, Washington, DC, April 2019, http://www.aarp.org/rxpricewatch. 4 Congressional Budget Office (CBO), Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid, Washington, DC, March 2019. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 3 drug products are widely expected to be the fastest- would have been almost $50,000 lower in 2017 growing sector of pharmaceuticals in the future.5 The (i.e., $29,843 v. $78,781) if the retail price changes impact of this shift is already evident in Medicare had been limited to the rate of general inflation Part D spending on specialty drugs, which increased between 2006 and 2017. from less than $9 billion in 2010 to nearly $33 billion Prescription drug price increases affect all types of in 2015.6 payers, including individuals, employers, private Until recently, relatively few patients used insurers, and taxpayer-funded programs such as specialty drugs. However, the US population is Medicare and Medicaid. For example, the Medicare steadily aging and older adults typically use more Payment Advisory Commission recently noted specialty medications than younger populations.7 that high drug prices and drug price increases In addition, specialty drugs are increasingly are a major factor in recent Medicare prescription being used to treat common chronic conditions drug spending growth.13 These spending increases, that affect millions of Americans.8 Specialty driven by high and growing drug prices, will affect drug products also represent a growing share of all Americans in some way. Those with private new drug approvals and the late-stage research health insurance will pay more in cost sharing and and development pipeline.9 Overall, these trends higher premiums for their health care coverage.14 indicate that a much larger share of the population In addition, increased government spending on will use specialty prescription drugs in the future. prescription drugs will ultimately lead to higher taxes and/or cuts to public programs. Increases in the retail price of specialty prescription drugs have a corresponding impact on the cost of This report presents annual and 12-year cumulative drug therapy for the individual and all other payers. price changes through the end of 2017. The first set In 2017, the average annual retail cost of prescription of findings shows annual rates of change in retail prices for widely used specialty drugs from 2006 drug therapy for a specialty drug, based on the through 2017, using both rolling average and point- market basket used in this study, was $78,781 per to-point methods (see Appendix A). The point-to- year. This average annual cost was almost $20,000 point method examines the distribution of price more than the median US household income changes and differences in average percentage ($60,336).10 It was also more than three times the changes in retail prices for individual drug products, median income for Medicare beneficiaries ($26,200),11 specific manufacturers, and specific therapeutic and over four-and-a-half times higher than the categories. The second set of findings summarizes average Social Security retirement benefit ($16,848).12 the cumulative impact of retail price changes for Notably, the average annual cost of drug therapy specialty drugs that have taken place across the for one specialty drug used on a chronic basis entire 12-year period from 2006 through 2017. 5 CBO, “Specialty Drugs.” 6 CBO, “Specialty Drugs.” 7 Alan M. Lotvin, William H. Shrank, Surya C. Singh, Benjamin P. Falit, and Troyen A. Brennan, “Specialty Medications: Traditional and Novel Tools Can Address Rising Spending on These Costly Drugs,” Health Affairs 33, no. 10 (2014): 1736–44. 8 Ibid. 9 CBO, “Specialty Drugs.” 10 Gloria G. Guzman, “Household Income: 2017, American Community Survey Briefs,” ACSBR/17-01, US Census Bureau, Washington, DC, September 2018. 11 The median annual income for Medicare beneficiaries was $26,200 in 2016. Gretchen Jacobson et al., Income and Assets of Medicare Beneficiaries, 2016–2035 (Washington, DC: Kaiser Family Foundation, April 2017). 12 The average monthly Social Security retirement benefit in 2017 was approximately $1,404 per month. Social Security Administration, Annual Statistical Supplement to the Social Security Bulletin, 2018, (Washington, DC, Social Security Administration, 2019), https://www.ssa.gov/policy/docs/statcomps/supplement/2018/5b.pdf. 13 Medicare Payment Advisory Commission (MedPAC), June 2018 Report to the Congress: Medicare and the Health Care Delivery System (Washington, DC, MedPAC, June 2018). 14 American Academy of Actuaries, “Issue Brief: Prescription Drug Spending in the U.S. Health Care System: An Actuarial Perspective,” American Academy of Actuaries, Washington, DC, March 2018. https://www.actuary.org/sites/default/files/files/publications/ PrescriptionDrugs.030718.pdf. 4 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Findings I. SPECIALTY PRICE TRENDS FOR MOST drug price increases observed during the prior WIDELY USED PRESCRIPTION DRUGS decade (i.e., 2008 to 2017), which ranged from In recent years, the annual percentage change 7.1 percent to 9.7 percent. in prices for specialty prescription drugs has consistently increased substantially faster • The average annual retail price increase in than general infation. 2017 for these specialty prescription drug products was more than three times higher • Retail prices for the 97 specialty drug than the rate of general inflation (7.0 percent products15 most widely used by older v. 2.1 percent).17 Americans rose 7.0 percent in 2017 compared with 2016 prices (Figure 1).16 This average • In contrast, retail prices for traditional annual increase was lower than the specialty (nonspecialty) brand name drug products Figure 1 Average Annual Specialty Drug Price Increase Is over Three Times Higher than General Inflation in 2017 Specialty Drug Prices (97 top drug products) General Infation (CPI-U) 9.7% 9.6% 9.5% 8.7% 8.9% 8.5% Average Annual % Change 8.2% 8.1% 7.1% 7.0% 5.2% 3.8% 3.2% 3.1% 2.9% 2.1% 2.1% 1.6% 1.5% 1.6% 3.2% 1.3% 0.1% -0.3% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of the average annual specialty drug price change include the 97 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases and MediSpan Price Rx Pro®. 15 The market basket for this analysis had 97 specialty prescription drug products. Some critics of the Rx Price Watch reports have suggested that drug products in our market basket that subsequently face generic competition should be excluded from this analysis because they may be skewing the results upward. However, when the 78 specialty drug products with no generic competition were analyzed separately, the average annual price change was 7.4 percent in 2017—higher than the 7.0 percent price trend shown in this report. 16 When measured as a 12-month rolling average and weighted by actual 2014 retail prescription sales to older Americans ages 50 and above, including Medicare beneficiaries. 17 The general inflation rate used in this report is based on the average annual rate of change in the Consumer Price Index–All Urban Consumers for All Items (CPI-U; seasonally adjusted), Bureau of Labor Statistics series CUSR0000SA0. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 5 most widely used by older Americans rose and timing of specialty drug price changes over by 8.4 percent in 2017, and retail prices the entire study period. This analysis reveals for traditional (nonspecialty) generic drug three broad trends since implementation of the products fell by 9.3 percent in the same year.18 Medicare Part D program in 2006: The annual retail price change for specialty drug • The retail prices of specialty drug products products reported in Figure 1 averages annual have consistently increased since 2006. point-to-point price changes for each month in the preceding 12-month period (referred to as a • Specialty drug price increases at the retail rolling average change), smoothing over the entire level have typically been considerably higher year the annual change in specialty drug price than the corresponding rate of general that occurs for a single month (referred to as an inflation. annual point-to-point change). • The gap between the rate of specialty drug Figure 2 shows the percentage change in specialty price change and the rate of change in general drug prices for each month compared with the inflation fluctuated but remained sizable for same month in the previous year. This trend is the past 10 years. This gap has ranged from a presented alongside the 12-month rolling average less than 2-fold difference to a more than 80- to allow more detailed examination of the rate fold difference. Figure 2 Rolling Average and Point-to-Point Changes in Retail Prices for Most Widely Used Specialty Prescription Drugs Greatly Exceeded Inflation from 2007 to 2017 Weighted Average % Change in Price from Same Month in Previous Year Annual % Change in Price (12-month rolling average, weighted by sales $ in 2014) CPI Annual % Change (12-month rolling average) 14.0% Affordable Care Act passed Medicare Part D 12.0% becomes available 10.0% Annual % Change 8.0% 6.0% Brand name drug manufacturers 4.0% begin providing coverage gap discounts 2.0% 0.0% -2.0% Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 Jan-12 Sep-12 Jan-13 Sep-13 Jan-14 Sep-14 Jan-15 Sep-15 Jan-16 Sep-16 Jan-17 Sep-17 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Note: Calculations of the average annual specialty drug price change include the 97 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. 18 Schondelmeyer and Purvis, “Rx Price Watch Report: Brand Name Prescription Drugs”; Schondelmeyer and Purvis, “Rx Price Watch Report: Generic Prescription Drugs.” 6 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE The cost of specialty drug therapy reached average Social Security retirement benefit $78,871 per drug per year in 2017. ($16,848) over the same time period.19 Figure 3 presents the retail price for 61 widely The average annual retail price of therapy for used specialty drugs indicated for treating chronic widely used specialty drugs is considerably higher conditions when the price is expressed as an than the average annual retail cost of therapy average annual cost of therapy per drug. for widely used traditional (nonspecialty) brand name and generic drugs. Furthermore, the price • The average cost of chronic therapy was differential between these three market baskets is $78,871 per drug per year for specialty growing rapidly. In 2017, the average annual price of prescription drugs at the retail level in 2017. therapy for specialty prescription drugs was almost — This average annual cost ($78,871) is 12 times higher than the average annual price of almost triple the average annual cost therapy for brand name prescription drugs ($78,781 ($27,824) for a specialty drug in 2006, the v. $6,798, respectively) and over 215 times higher year Medicare implemented Part D. than the average annual price of therapy for generic — The average annual cost of therapy for a prescription drugs ($78,781 v. $365, respectively).20 single specialty drug in 2017 ($78,871) was Figure 4 shows the annual price of therapy for almost $20,000 higher than the median specialty, brand name, and generic drugs in US household income ($60,336), more the past six years (2012–17). While the average than three times the median income for annual generic price of therapy has decreased a Medicare beneficiary ($26,200), and by 38.3 percent ($592 to $365), the average over four-and-a-half times higher than the annual brand name price of therapy has almost Figure 3 The Average Annual Price of Specialty Drugs Almost Tripled between 2006 and 2017 $78,871 $71,723 Annual Retail Cost of Therapy per Drug $64,921 $58,781 $51,496 $46,260 $42,108 $39,291 $36,708 $30,076 $31,952 $27,824 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of the average annual specialty drug price change include the 61 drug products most widely used by older Americans for chronic conditions (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. 19 Guzman, “Household Income”; Jacobson et al., Income and Assets; Social Security Administration, Annual Statistical Supplement. 20 Schondelmeyer and Purvis, Rx Price Watch Report: Brand Name Prescription Drugs; Schondelmeyer and Purvis, Rx Price Watch Report: Generic Prescription Drugs. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 7 Figure 4 The Average Annual Retail Price of Therapy for Specialty Drugs Is Substantially Higher than the Average Annual Retail Price of Therapy for Brand Name and Generic Drugs in 2017 Generic Price Brand Name Price Specialty Price Annual Retail Cost of Therapy per Year $78,871 $71,723 $64,921 $58,781 $51,496 $46,260 $5,038 $5,856 $6,362 $6,798 $3,539 $4,308 $592 $751 $634 $479 $434 $365 2012 2013 2014 2015 2016 2017 Note: Calculations of average annual drug price of therapy included the drug products most widely used by older Americans for chronic conditions: generic drugs products (260), brand name drug products (214), and specialty drug products (61). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. doubled ($3,539 to $6,798) and the average annual II. ANNUAL TRENDS IN PRICE CHANGES specialty price of therapy has increased by more FOR MOST WIDELY USED SPECIALTY than 70 percent ($46,260 to $78,871). PRESCRIPTION DRUGS BY FDA APPROVAL PROCESS While brand name traditional (nonspecialty) drugs The products in the specialty market basket had the highest percentage increase (92 percent were approved by the US Food and Drug v. 70 percent for specialty drugs) between 2012 Administration (FDA) using one of the following and 2017, the specialty drugs had a much more substantial increase in actual monetary value, with processes: (a) a new drug application (NDA); a dollar increase from 2012 to 2017 of $32,611. This (b) a biologic license application (BLA); or (c) an very large difference in dollar change stems from abbreviated new drug application (ANDA). NDAs the much higher initial price of specialty drugs as and ANDAs apply to drug products and medical they enter the market. For example, a 10 percent devices, and BLAs apply to biological products. price increase for a $10,000 drug product is $1,000, Of the 97 drug products in the specialty market while the same percent price increase for a $1,000 basket, 70 were NDA approved, 26 were BLA drug product is $100. approved, and 1 was ANDA approved. Notably, the average annual cost of therapy per NDA- and BLA-approved drugs are new brand drug for these same specialty drug products name drugs, while ANDA-approved drugs are would have been $29,843—almost $50,000 generic drugs. Drug products approved as NDAs, lower—in 2017 if their retail price changes had BLAs, and ANDAs differ considerably in their been limited to the rate of general inflation annual percentage change and their annual dollar between 2006 and 2017 (Figure 5).21 change in cost of therapy. 21 There is no clear rationale for prescription drug price increases given that launch prices ostensibly reflect the costs associated with developing the drug and future research costs. A. Kesselheim, J. Avorn, and A. Sarpatwari, “The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform,” Journal of the American Medical Association 316, no. 8 (2016): 858–71. 8 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Figure 5 The Average Annual Cost of Specialty Drugs Would Be Nearly $50,000 Lower if Retail Price Changes Were Limited to General Inflation Cost of Therapy per Drug (Actual) Cost of Therapy per Drug (Price Growth Limited to General Infation) $78,871 $71,723 Annual Retail Cost of Threapy per Drug $64,921 $58,781 $51,496 $46,260 $42,108 $39,291 $36,708 $30,076 $31,952 $27,824 $30,829 $31,788 $31,445 $30,781 $29,843 $26,557 $26,819 $24,996 $27,624 $27,323 $27,071 $27,780 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of the average annual specialty drug price change include the 61 drug products most widely used by older Americans for chronic conditions (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. Annual Percentage Change in Retail Prices than the rate of general inflation (2.1 percent).22 Annual retail price increases for BLA-approved • Retail prices for NDA-approved (brand name) drug products between 2006 and 2014 ranged specialty drug products most widely used from 3.1 percent to 17.1 percent (Figure 6). The by older Americans rose by an average of price increases of BLA-approved drug products 5.9 percent in 2017. This rate of increase was accelerated between 2010 and 2016 (from almost three times higher than the rate of 6.8 percent in 2010 to 17.1 percent in 2016) and general inflation (2.1 percent) when measured have exceeded the price increases of NDA- as a 12-month rolling average and weighted by approved drugs every year since 2011. sales to older Americans ages 50 and above. Annual retail price increases for NDA-approved • Retail prices for all brand name specialty drug products (i.e., NDA- and BLA-approved drug products between 2006 and 2014 ranged drug products) most widely used by older from 3.4 percent to 10.3 percent (Figure 6). Americans increased at an average rate of • Retail prices for BLA-approved (brand name) 9.6 percent in 2016 and 7.1 percent in 2017. specialty drug products most widely used by In contrast, retail prices for brand name older Americans increased by an average of nonspecialty drug products most widely used 10.0 percent in 2017, almost five times higher by older Americans increased by an average 22 The Affordable Care Act of 2010 contained a provision that granted FDA the authority to approve less-expensive generic (biosimilar or interchangeable) versions of BLA-approved specialty drugs. However, FDA has yet to finalize all of the regulations needed to fully implement this new authority and relatively few biosimilars have entered the market. Thus, biologic drug manufacturers still do not face meaningful generic competition after biologic patents expire. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 9 Figure 6 Average Retail Prices Are Higher among BLA-Approved Specialty Prescription Drugs Retail Price (ANDA) Retail Price (NDA) Retail Price (BLA) General Infation (CPI-U) 17.1% 16.0% 12.2% 12.9% 11.8% 10.3% 10.0% Average Annual % Change 9.3% 8.5% 6.8% 6.6% 7.7% 7.6% 6.8% 8.1% 8.1% 6.0% 7.1% 7.0% 6.3% 5.9% 3.4% 3.9% 3.1% 3.2% 2.9% 3.8% 1.6% 3.1% 2.1% 1.5% 1.6% 0.1% 1.3% 2.1% -0.3% -5.8% -6.8% -14.8% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of average annual specialty drug price change include 97 drug products most widely used by older Americans: ANDAs (1), NDAs (70), and BLAs (26). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. of 13.7 percent and 8.4 percent, respectively, in consumer used the specialty drug for a chronic those years.23 condition. The average annual cost of therapy for NDA-approved specialty drugs increased • In contrast, the retail prices of the single by 109 percent since 2006, the year Medicare ANDA-approved (generic) specialty drug product most widely used by older Americans implemented Part D. decreased by 14.8 percent in 2017. Similarly, • The average annual cost of therapy for BLA- the retail prices for generic nonspecialty approved specialty prescription drugs was drug products most widely used by older $64,747 in 2017. The average annual cost of Americans decreased at an average rate of therapy for BLA-approved specialty drugs 9.3 percent over the same time period.24 increased by 241 percent since 2006, the year Medicare implemented Part D. Annual Retail Cost of Therapy We translated retail price changes into average III. TWELVE-YEAR CUMULATIVE RETAIL annual cost of therapy (Figure 7) for the widely PRICE CHANGES FOR MOST WIDELY USED used specialty drugs for treating chronic SPECIALTY PRESCRIPTION DRUGS, 2006–17 conditions. Of the 61 drugs in the market basket This AARP report tracked specialty drug prices used to treat chronic conditions, 40 were NDAs, 21 at the retail level for the 12-year period from were BLAs, and none were ANDAs. December 31, 2005, to December 31, 2017. Twenty- eight percent (27 of 97) of the widely used drugs • A person who took an NDA-approved specialty in the specialty market basket were on the market prescription drug had an average annual cost for the entire 12-year period (i.e., the end of 2005 of therapy of $91,385 in 2017, assuming that the through the end of 2017). 23 Schondelmeyer and Purvis, Rx Price Watch Report: Brand Name Prescription Drugs. 24 Schondelmeyer and Purvis, Rx Price Watch Report: Generic Prescription Drugs. 10 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Figure 7 The Average Annual Cost of Therapy Increased by More than 240 Percent for Widely Used BLA- Approved Specialty Prescription Drugs between 2006 and 2017 NDA (40) $91,385 BLA (21) $81,764 $75,258 Annual Retail Cost of Therapy per Drug $69,595 $64,747 $62,485 $60,390 $57,865 $56,118 $53,254 $52,978 $50,993 $46,577 $45,206 $43,661 $43,163 $39,942 $34,950 $29,134 $26,921 $23,626 $22,311 $20,291 $19,009 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of average annual drug price of therapy included the 61 drug products most widely used by older Americans for chronic conditions: NDAs (40) and BLAs (21). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. Cumulatively, the average retail price for these Three-quarters (15 of 20) of the specialty drugs 27 widely used specialty drug products increased used for chronic conditions that have been on the 226.4 percent over 12 years, compared with a market since the end of 2005 had annual cost of 25.1 percent increase in general inflation during therapy increases of more than $10,000 during the the same period. This means that specialty drug 12-year period ending in 2017. prices increased more than nine times faster than the rate of general inflation during this time IV. MORE THAN 8 OUT OF 10 WIDELY USED period. SPECIALTY DRUGS INCREASED IN PRICE FASTER THAN GENERAL INFLATION IN 2017 The 12-year cumulative change in annual Of the most widely used specialty drug products, specialty drug cost of therapy is substantial. 82 percent (80 of 97) had retail price increases Of the specialty drug products in the AARP that met or exceeded the rate of general inflation market basket that have been on the market since (2.1 percent) in 2017 (Figure 8). the end of 2005, 74 percent (20 of 27) treat chronic Sixty percent (58 of 97) of the most widely used conditions.25 The remaining 7 drug products treat specialty drug products had retail price increases acute or intermittent conditions. of between 5.0 percent and 9.9 percent. The average annual retail cost of drug therapy for Among the 18 percent (17 of 97) of specialty specialty drug products on the market since the drug products with annual price increases of end of 2005 and used to treat chronic conditions 10.0 percent or more in 2017, was $62,406 in 2017, which is an increase of $42,737 over the 2006 annual cost of $19,669. • Nine (9 percent) increased by 10.0 percent to 14.9 percent; 25 We classified the drug products in our study market basket based on whether the primary indication for use was for a chronic condition or an acute (or intermittent) condition. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 11 • Five (5 percent) increased by 15.0 percent to Figure 8 19.9 percent; and Retail Prices Increased for More than 80 Percent of Most Widely Used Specialty Drugs • Three (3 percent) increased by 20.0 percent or in 2017 more. The single highest retail price increase for a 15.0%–19.9% 20.0%–48.1% increase specialty drug product in the market basket was increase 3 Drugs 5 Drugs for Revatio (20 mg tablet, used to treat pulmonary 2.1%–4.9% hypertension). Revatio’s retail price rose by 10.0%–14.9% 0.2%–14.7% increase decrease 48.1 percent between 2016 and 2017 (Figure 9). increase 10 Drugs 5 Drugs 9 Drugs The second highest retail price increase among the No Change 7 Drugs most widely used specialty drugs was Revlimid (10 mg capsule, used to treat cancer), which had an annual price increase of 21.4 percent in 2017 compared with 2016. Prolastin-C (1,000 mg, used to treat emphysema) also had a price increase 5.0%–9.9% increase between 2016 and 2017 of more than 20 percent. 58 Drugs One of the 97 top specialty drug products was a generic drug product. This generic drug (capecitabine 500 mg tablet, used to treat cancer) had a price decrease, along with 9 other drug Percentage Change in Retail Price products (Figure 10). Seven other drug products (TOTAL = 97 Drugs) did not experience a price change between 2016 12-Month Rate of General Infation = 2.1% and 2017. Source: Prepared by the AARP Public Policy Institute All but 5 of the 30 top-selling specialty drug and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research products in the market basket had retail price Databases. increases in 2017 when compared with 2016 (Table 1). Each of these 25 top-selling specialty drug products had a price increase that was higher than the rate of general Figure 9 inflation (2.1 percent) in 2017. Retail Prices for Three Widely Used Specialty Drugs Increased by More than 20 Percent in 2017 Of the top 30 specialty drug products, 5 had retail price increases of 12.6 percent Specialty Retail Price or more in 2017—at least six times the General Infation (2.1%) rate of general inflation. The highest retail price increase in 2017 among the top 30 specialty drug products was Revatio 20 mg tablet 48.1% 21.4 percent for Celgene’s Revlimid 10 mg capsule, used to treat cancer (Figure 9). Five widely used specialty drug products Revlimid 10 mg capsule 21.4% experienced retail price decreases of –0.2 percent to –4.4 percent between 2016 and 2017. Prolastin-C 1,000 mg 20.9% V. RETAIL PRICE CHANGES FOR Annual % Change MOST WIDELY USED SPECIALTY PRESCRIPTION DRUGS BY Source: Prepared by the AARP Public Policy Institute and the PRIME MANUFACTURER Institute, University of Minnesota, based on data from Truven Health Thirty drug manufacturers had at least MarketScan® Research Databases. 1 drug product in the study’s market 12 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Table 1 Twenty-Five of the Top 30 Drug Products in the Specialty Market Basket Had Retail Price Increases in 2017 Rank by Sales among 2017 Retail Annual % 2014 Market Product Name, Price per Change in Basket* Strength, and Dosage Form Pkg Size Manufacturer Therapeutic Class Day Retail Price 1 Sovaldi 400 mg tablets 28 Gilead Sciences Hepatitis B & C $1,017.04 2.2% 2 Humira Pen 40 mg/0.8 mL SQ inj Kit 1 AbbVie DMARD $160.58 7.7% 3 Enbrel SureClick 50 mg/mL SQ inj 0.98 Amgen DMARD $156.53 7.5% 4 Gleevec 400 mg tablets 30 Novartis Antineoplastic Agents $333.25 –0.7% 5 Olysio 150 mg capsules 28 Janssen Products Hepatitis B & C $796.32 –1.0% 6 Copaxone 20 mg/mL SQ Kit 1 Teva Neuroscience Multiple Sclerosis Agents $233.03 7.0% 7 Tecfidera 240 mg DR capsules 60 Biogen Idec Multiple Sclerosis Agents $224.55 7.3% 8 Harvoni 90–400 mg tablets 28 Gilead Sciences Hepatitis B & C $1,114.34 –1.1% 9 Revlimid 10 mg capsules 28 Celgene Corp Immunomodulators $678.07 21.4% 10 Enbrel 50 mg/mL SQ inj 0.98 Amgen DMARD $156.69 7.6% 11 Copaxone 40 mg/mL SQ Kit 1 Teva Neuroscience Multiple Sclerosis Agents $203.67 6.9% 12 Atripla 600-200-300 mg tablets 30 Gilead Sciences Antiretroviral Combinations $84.96 6.2% 13 Zytiga 250 mg tablets 120 Janssen Biotech Antineoplastic Agents $314.08 8.7% 14 Humira 40 mg/0.8 mL SQ inj 1 AbbVie DMARD $157.66 7.6% 15 Truvada 200 mg–300 mg tablets 30 Gilead Sciences Antiretroviral Combinations $52.26 6.6% 16 Avonex Prefilled 30 mcg/0.5 mL IM Kit 1 Biogen Idec Multiple Sclerosis Agents $205.59 –4.4% 17 Xtandi 40 mg capsules 120 Astellas Antineoplastic Agents $346.66 9.8% 18 Forteo 600 mcg/2.4 mL SQ inj 2.4 Lilly Endocrine Drugs $111.40 14.8% 19 Revlimid 5 mg capsules 28 Celgene Corp Immunomodulators $516.83 –0.2% 20 Rebif 44 mcg/0.5 mL SQ inj 0.5 Serono Multiple Sclerosis Agents $242.22 8.4% 21 Revlimid 25 mg capsules 21 Celgene Corp Immunomodulators $653.13 19.2% 22 Tracleer 125 mg tablets 60 Actelion Pharmaceuticals Pulmonary Hypertension $360.40 14.4% 23 Stelara 90 mg/mL SQ inj 1 Janssen Biotech Antipsoriatics $214.51 7.9% 24 Imbruvica 140 mg capsules 90 Pharmacyclics Antineoplastic Agents $371.23 7.9% 25 Isentress 400 mg tablets 60 Merck Sharp & Dohme Antiretrovirals - Integrase Inhibitors $46.16 7.5% 26 Betaseron 0.3 mg SQ inj 1 Bayer Healthcare Pharma Multiple Sclerosis Agents $234.85 5.9% 27 Revlimid 15 mg capsules 21 Celgene Corp Immunomodulators $493.29 19.4% 28 Tarceva 150 mg tablets 30 Genentech Antineoplastic Agents $267.07 6.4% 29 Afinitor 10 mg tablets 28 Novartis Antineoplastic Agents $470.40 8.7% 30 Orencia 125 mg/mL inj 1 Bristol Myers Squibb DMARD $136.13 5.6% General rate of inflation (as measured by growth in CPI-U) 2.1% TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE *Ranking based on 2014 spending data provided by the Truven Health MarketScan® Research Databases and a large Medicare Part D plan provider. See Appendix A. 13 Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. basket of 97 widely used specialty drugs. Figure 10 The average annual increase in retail Retail Prices for 10 Widely Used Specialty Prescription Drugs Decreased in 2017 price for 83 percent (25 out of 30) of these drug manufacturer categories exceeded Specialty Retail Price the general inflation rate in 2017 (Figure General Infation (2.1%) 11), suggesting that there is a broad-based -0.2% Revlimid 5 mg capsule specialty drug price increase trend. -0.7% Gleevec 400 mg tablet • Twenty-two drug manufacturers -1.0% Olysio 150 mg capsule (73 percent) had weighted average -1.1% Harvoni 90-400 mg tablet annual specialty drug price increases -1.5% Votrient 20 mg tablet of 4.2 percent or more in 2015—or -2.9% Epzicom 600-300 mg tablet at least twice the rate of general -4.4% Avonex 30 mcg/0.5 mL kit inflation (2.1 percent) in 2017. -10.1% Gleevec 100 mg tablet • Three drug manufacturers had -12.2% Gammagard inj 30 gm/300 mL weighted average specialty drug -14.7% Capecitabine 500 mg tablets price increases of more than Annual % Change 15.0 percent in 2017, or more than seven times the rate of general Source: Prepared by the AARP Public Policy Institute and the PRIME inflation (2.1 percent) in 2017. Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. — Celgene and Pfizer had weighted average annual price increases of 16.3 percent and 16.8 percent, with an increase in price averaged annual price respectively, in 2017—or roughly eight increases of 5.0 percent or greater—more than times the rate of general inflation. twice the rate of general inflation in 2017. — Grifols USA had a weighted average annual • Fifteen therapeutic categories had average price increase of 20.9 percent in 2017—or annual price increases of 6.3 or higher—or nearly 10 times the rate of general inflation. three times the rate of general inflation in • Two drug manufacturers with only one product 2017 (2.1 percent). in the study’s market basket—Valeant and • Five therapeutic categories had average annual United Therapeutics Corp—had no change in price increases of 10.5 percent or higher—or their weighted average annual price in 2017. five times the rate of general inflation in 2017. • One manufacturer (Baxalta, four drug — The therapeutic category with the products) had a weighted average annual retail highest specialty drug price increase was price decrease of 1.6 percent in 2017. immunomodulators—used to regulate the immune system—with an average annual VI. RETAIL PRICE CHANGES FOR MOST retail price increase of 16.1 percent in 2017. WIDELY USED SPECIALTY PRESCRIPTION DRUGS BY THERAPEUTIC CATEGORY • One of the 21 therapeutic categories (Hepatitis Specialty drug prices at the retail level increased B & C) experienced a relatively small retail faster than the rate of general inflation price increase of 1.1 percent in 2017, and (2.1 percent) in 2017 for 90 percent (19 of 21) of 1 therapeutic category (Immune Serums) had a the therapeutic categories examined in this study weighted average annual retail price decrease (Figure 12). All 19 of the therapeutic categories of –1.6 percent. 14 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Figure 11 Figure 12 Twenty-Five of 30 Drug Manufacturers Had All but Two Therapeutic Categories for Retail Price Increases That Exceeded the Rate Specialty Drugs Had Retail Price Increases That of General Inflation in 2017 Exceeded the Rate of General Inflation in 2017 Specialty Retail Price Specialty Retail Price General Infation (2.1%) General Infation (2.1%) Grifols USA (1) 20.9% Immunomodulators (4) 16.1% Pfzer (5) 16.8% Respiratory Agents (2) 13.4% Celgene Corp (6) 16.3% Actelion Pharm (2) 14.6% Pulmonary Hypertension (7) 12.5% Lilly (2) 13.3% Endocrine Drugs (3) 11.4% Incyte Corporation (3) 10.9% Jazz Pharmaceuticals (1) 10.4% JAK Inhibitors (3) 10.9% Acorda Therapeutics (1) 10.2% CNS Agent, Misc. (1) 10.4% UCB Pharma (1) 9.2% Serono (3) 8.5% Immunosuppressive Agents (1) 9.0% Shire (2) 8.2% Atypical Antipsychotics (3) 8.0% Pharmacyclics (1) 7.9% Merck Sharp & Dohme (1) 7.5% Antipsoriatics (2) 7.9% AbbVie (4) 7.4% DMARD (8) 7.5% Amgen (6) 7.3% Genentech (4) 7.2% Antiretrovirals -Integrase Inhibitors (2) 7.5% Bayer Healthcare Pharma (3) 7.0% Hematopoietic Agents (2) 6.9% B-M Squibb (5) 5.6% Astellas (1) 5.5% Complement Inhibitors (2) 6.9% Janssen/Janssen Biotech (13) 4.8% Gastrointestinal Agents (3) 6.7% Teva Neuroscience (3) 4.4% Viropharma, Inc (1) 4.3% Antiretrovirals -NNRTI (3) 6.5% Genzyme (1) 3.7% Multiple Sclerosis Agents (10) 6.0% Biogen Idec (3) 3.4% Gilead Sciences (9) 3.1% Antiretroviral Combinations (6) 5.4% Novartis (7) 1.3% Antiretrovirals -Protease Inhibitors (4) 5.4% Viiv Healthcare (2) 0.3% United Therapeutics Corp (1) 0.0% Antineoplastic Agents (23) 5.0% Valeant (1) 0.0% Hepatitis B & C (4) 1.1% Baxalta (4) -1.6% Immune Serums (4) -1.6% Average Annual % Change Average Annual % Change Note: Calculations include the 97 specialty prescription drug products most widely used by older Americans Note: Calculations include the 97 specialty prescription (see Appendix A). The number in parentheses after a drug products most widely used by older Americans manufacturer’s name indicates the number of drug (see Appendix A). See Appendix B for an explanation products in the market basket for that manufacturer. The of therapeutic category acronyms. The number in general inflation rate is based on CPI-U All Items for 2017. parentheses after a therapeutic category indicates the number of drug products in the market basket for that Source: Prepared by the AARP Public Policy Institute and therapeutic category. The general inflation rate is based the PRIME Institute, University of Minnesota, based on data on the CPI-U All Items for 2017. from Truven Health MarketScan® Research Databases. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 15 Concluding Observations Specialty drug prices have routinely increased While specialty drug products are used by much faster than general inflation over the more a relatively small, but growing, share of the than 12 years that this report series has been overall population, they account for the fastest- tracking prescription drug prices. In 2017, the growing portion of US drug expenditures in average annual increase in retail prices for 97 recent years.29,30 There are strong indications that specialty prescription drugs widely used by older specialty drugs will become the largest share, and Americans, including Medicare beneficiaries, was the majority, of drug expenditures in the next 7.0 percent. In contrast, general inflation in the few years. If recent trends in specialty drug prices United States rose by 2.1 percent in 2017. and related price increases continue, it will almost Increases in the retail price of specialty undoubtedly become more difficult for patients to prescription drugs affect both patients and the access and afford necessary specialty medications. broader economy. In 2017, the average annual Spending increases driven by high and growing retail cost of prescription drug therapy for a specialty drug prices affect all Americans in some specialty drug, based on the market basket used way. Those with private health insurance will pay in this study, was $78,781 per year. This average higher premiums and/or cost sharing for their annual cost was almost $20,000 more than the health care coverage31 and government programs median US household income ($60,336).26 It was will grow faster than the tax-based revenue that also more than three times the median income for supports them, leading to higher taxes and/or Medicare beneficiaries ($26,200),27 and over four- to cuts to public health or other health benefit and-a-half times higher than the average Social programs. Security retirement benefit ($16,848)28 in 2017. Policy makers interested in reducing the impact Notably, the average annual cost of drug therapy of prescription drug prices should focus on for one specialty drug used on a chronic basis options that drive significant innovation while would have been almost $50,000 lower in 2017 also protecting the health and financial security (i.e., $29,843 v. $78,781) if the retail price changes of consumers and taxpayer-funded programs like had been limited to the rate of general inflation Medicare and Medicaid. between 2006 and 2017. 26 Guzman, “Household Income.” 27 The median annual income for Medicare beneficiaries was $26,200 in 2016. Jacobson et al., Income and Assets. 28 The average monthly Social Security retirement benefit in 2017 was approximately $1,404 per month. Social Security Administration, Annual Statistical Supplement. 29 Department of Health & Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE), “Observations on Trends in Prescription Drug Spending,” ASPE Issue Brief, ASPE, Washington, DC, March 8, 2016. 30 CBO, Specialty Drugs. 31 American Academy of Actuaries, “Issue Brief.” 16 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Appendix A Detailed Methodology and Description of Retail Price Data This appendix describes in detail how brand products that they are taking as individuals rather name, generic, and specialty drugs are defined in than all drug products on the market. this study; how the study identified the market The AARP Public Policy Institute and the basket (i.e., sample) of drugs; how it measured University of Minnesota’s PRIME Institute prices; and how it calculated weighted average originally collaborated to report an index of price changes. In addition, the appendix describes manufacturers’ drug price changes based on methods and assumptions used to determine the Wholesale Acquisition Cost (WAC) from prices and price changes by drug manufacturer the Medi-Span Price-Chek PC database.1 In and by therapeutic category. 2009, AARP and the PRIME Institute created an additional drug price index based on actual OVERVIEW retail prices2 from Truven Health’s MarketScan® AARP’s Public Policy Institute has been Commercial Database and MarketScan® publishing a series of reports that track price Medicare Supplemental Database (Truven Health changes for the prescription drug products most MarketScan® Research Databases).3 Thus, the widely used by older Americans, with annual and report series uses the same market basket of quarterly results reaching as far back as 2000. brand name prescription drugs widely used by Since 2008, these reports have focused on price older Americans to examine both manufacturer- changes for three market baskets—brand, generic, level prices and retail-level prices in the market. and specialty drugs. In addition, a combined The addition of retail-level prices allows the market basket (i.e., brand, generic, and specialty) AARP Public Policy Institute to assess what prices has been added to the series, which is useful to payers (i.e., insurers, consumers, or government view the price change trend across all types of programs) are paying and whether rebates and outpatient prescription drugs in the US market. other types of discounts have been passed along While this overall perspective is useful for to payers and their covered members. those interested in understanding the industrial Recently, the AARP Public Policy Institute and economics of the entire prescription drug market, the University of Minnesota’s PRIME Institute consumers have proven to be considerably more collaborated to develop a new market basket of interested in the price trend for the specific widely used prescription drugs based on 2014 data 1 Medi-Span is a private organization that collects price and other clinical and drug-related data directly from drug manufacturers and wholesalers. Price-Chek PC (now Price Rx Pro®) is a product of Medi-Span (Indianapolis, IN), a division of Wolters Kluwer Health Inc., and uses data from Medi-Span’s Master Drug Database (MDDB®). This commercial drug database has been published for more than 35 years. See http://www.medispan.com. 2 The retail prices used in this report series reflect the total price for a specific prescription that a PBM bills to a specific health plan for consumers enrolled in employer-sponsored or government-sponsored (i.e., Medicare or Medicaid) health plans and not simply the out-of-pocket cost (such as the copay) that a consumer would pay at the pharmacy. These amounts may or may not reflect what the PBM paid the pharmacy or the usual and customary price that a pharmacy would charge a cash-pay consumer for the same prescription. 3 The Truven Health MarketScan® Research Databases, a family of databases, contain individual-level health care claims, lab test results, and hospital discharge information from large employers, managed care organizations, hospitals, Medicare, and Medicaid programs. Truven Health constructs the MarketScan® Research Databases by collecting data from employers, health plans, and state Medicaid agencies and placing them into databases. Erica Danielson, “White Paper: Health Research Data for the Real World: The MarketScan® Databases,” White Paper, Truven Health Analytics, Ann Arbor, MI, January 2014. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 17 provided by the Truven Health MarketScan® product on the market, the level of economic Research Databases and a large Medicare Part D competition may be somewhat limited until other plan provider. UnitedHealthcare provides Medicare economically independent generic marketers enter Part D coverage and is the organization that insures the market. the AARP Medicare Rx plans. This Medicare Part Specialty pharmaceuticals are drugs that treat D plan provider supplied data for all prescriptions complex, chronic conditions and that often provided to its Medicare Part D enrollees in 2014. require special administration, handling, and This Rx Price Watch report used the 2014 market care management. Specialty drugs have been basket.4 As in the past, the series will include the fastest-growing group of new drug products separate data sets, analyses, and reports for brand over the next decade. This important group of name, generic, and specialty drugs, as well as the drugs and biologicals is not precisely defined, overall combined market basket. but it includes products based on one or more DEFINING BRAND, GENERIC, AND SPECIALTY of the following: (1) how they are made, (2) how PHARMACEUTICALS they are approved by the FDA, (3) conditions A brand name drug is defined as a product they treat, (4) how they are used or administered, marketed by the original holder of a new drug (5) their cost, and (6) other special features. The application (NDA, or related licensees) or a operational definition of specialty drugs for this biological license application (BLA; or related study is further described in a later section on the licensees) for a given drug entity. A generic drug methodology. is defined as any drug product marketed by an entity other than the NDA or BLA holder or the CREATING THE MARKET BASKET OF DRUGS related licensees. The AARP Public Policy Institute has been reporting prescription drug product price changes The market conditions and pricing behavior since 2004. The original reports were based for brand name and generic drugs are quite on a market basket of retail and mail-order different. For example, brand name drugs have prescriptions provided to about 2 million people a monopoly based on patents and other forms of ages 50 and older who used the AARP Pharmacy exclusivity for a number of years after market Service in 2003. Following the implementation entry,5 and they do not experience typical price of the Medicare Part D program, we chose to competition from therapeutically equivalent (i.e., develop a new market basket of drugs using 2006 AB-rated generic equivalents) drug products that data provided by UnitedHealthcare (formerly can be routinely and directly substituted at the called PacifiCare), which is also the organization pharmacy level. On the other hand, generic drug that insures the AARP Medicare Part D plans. products typically face price competition from All AARP price trend reports published between the time the generic first enters the market, when 2007 and 2012 used this market basket. there are two or more therapeutically equivalent drug products (as evaluated by the Food and Subsequently, we updated the AARP market Drug Administration [FDA] and reported in the baskets again using 2011 data provided by Truven Orange Book), including the brand name product. Health MarketScan® Research Databases and However, certain generic drugs—that is, those for the same Medicare Part D plan provider that was which the generic manufacturer files a paragraph used for the 2006 market basket. We weighted IV certification of patent non-infringement—may the data from the Medicare Part D plan provider receive 180 days of exclusivity as the sole generic by Part D enrollment and the Truven Health after this first generic drug product is approved. MarketScan® data by the 50-plus population In cases in which there is only one generic drug less Part D enrollment, based on data from the 4 The US Food & Drug Administration approved 113 new drugs and biological products between 2015 and 2017. These products are not included in our current market basket but will be included in future market baskets if they meet our inclusion criteria. US Food & Drug Administration, New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products, accessed September 1, 2018. https://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/default.htm. 5 The average market exclusivity period for a brand name drug is almost 13 years. Henry Grabowski, Genia Long, and Richard Mortimer, “Brief Report: Recent Trends in Brand-Name and Generic Drug Competition,” Journal of Medical Economics 17, no. 3 (2014): 207–14. 18 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Centers for Medicare and Medicaid Services and patent brand name (i.e., brand multiple source the US Census. We then merged the weighted [BMS] or innovator multiple source [IMS]), and off- data to develop and rank a weighted master list patent generic (i.e., generic multiple source [GMS] by prescription volume and sales at the National or non-innovator multiple source [NMS]). We then Drug Code (NDC) level for the new AARP market grouped all NDC numbers by the Generic Product baskets. Indicator (GPI) code into GPI-patent status groups This process was repeated using 2014 data using the GPI code from Price Rx Pro®. The GPI provided by the same data sources. The 2014 combines drug products into a common group market basket is the basis of this report and the when they have the same active ingredients, 2015 through 2017 Rx Price Watch reports. dosage form, and strength—a single GPI includes the NDCs for any package type and size and Our selection of the market basket of drugs to from all manufacturers. When patent status is track in the price index was a multistep process. combined with the GPI categories, each GPI will First, prescriptions covered and adjudicated by typically be either a single source GPI (GPI-brand the commercial entities included in the merged single source) or a multiple source GPI with both data set were grouped by NDC number. The a GPI-brand multiple source group and a GPI- NDC is a number that refers to a specific drug generic multiple source group. product presentation with a unique combination of active chemical ingredient, strength, dosage The next step involved summing the total form, package type and size, and manufacturer expenditures, number of prescriptions dispensed, (e.g., Nexium [esomeprazole magnesium] 40 mg, and days of therapy provided across all NDCs capsule, bottle of 30, AstraZeneca). As a result, within each GPI-patent status group. The NDCs some drug entities (i.e., molecules) could appear within each GPI-patent status group were then more than once among the widely used drug rank ordered based on total annual expenditure products (e.g., when there are different strengths, for each NDC. The designated “representative such as Lipitor 10 mg, Lipitor 20 mg, and Lipitor NDC” was the NDC that had the highest level of 40 mg). For each NDC, we calculated total sales expenditure within each GPI-patent status group. revenue from adjudicated prescription claims, If the NDC with the greatest expenditure level including the patient cost-sharing amount, as well was inactive, then the NDC with the next highest as the total prescriptions dispensed, the total units level of expenditure became the representative supplied, and the total days of therapy provided NDC. during 2014. This analysis excluded less than 0.5 percent of the The next step involved merging the use and expenditures and the prescriptions because they expenditure data from the Truven Health were for nondrug items. These nondrug items MarketScan® Research Databases and the included devices, medical and diabetic supplies, Medicare Part D plan provider by NDC code and syringes, compounding service fees, and other then linking the data with descriptive information professional services. After exclusion of nondrug from Medi-Span’s Price Rx Pro® drug database,6 items, the 2014 data set contained 36,866 NDCs using the NDC number as the key linking grouped into 6,085 GPI-patent status categories. variable. The descriptive data from Price Rx Pro We then coded all GPIs to distinguish the included drug product information such as brand specialty prescription drugs from other regular, name, generic name, manufacturer, patent status, or traditional, prescription drugs. The definition package size, route of administration, usual dose, of specialty prescription drugs used here is a therapeutic category, usual duration, and each prescription drug that is (1) administered by price history. injection, such as intravenous, intramuscular, All NDCs were classified by the patent status of sub-cutaneous, or other injection site (not the drug product presentation—that is, patented including insulin); (2) a drug product approved brand name (i.e., brand single source [SS]), off- by the FDA through a BLA (biological license 6 Price Rx Pro® is a product of Medi-Span (Indianapolis, IN), a division of Wolters Kluwer Health, Inc., and is based on data from Medi- Span’s MDDB®. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 19 application); (3) any drug product that has a total MONITORING RETAIL DRUG PRICES average prescription cost greater than $1,000 The original Rx Watchdog reports were based on per prescription; or (4) any drug product that market baskets of drugs constructed using data has a total average cost greater than $33 per from a Medicare Part D plan provider for 2006 day of therapy. The drug products meeting this and manufacturer drug price changes measured definition were considered “specialty drugs” and using WAC data from the Medi-Span Price-Chek all other prescription drugs were considered PC database. The AARP Public Policy Institute “regular,” “traditional,” or “nonspecialty” drugs. and the University of Minnesota’s PRIME Institute Throughout this report, references to the market collaborated to develop a new retail drug price basket of drugs refer to the regular (nonspecialty) index known as the Rx Price Watch reports, based drugs unless otherwise indicated. Only specialty on retail-level prescription prices from the Truven drugs provided through a Medicare Part D Health MarketScan® Research Databases. This program or under a prescription drug benefit retail price index allows the AARP Public Policy program are included. The specialty drugs Institute to assess retail prices actually paid by provided under Medicare Part B, or under a consumers or insurers and to determine whether commercial health plan and administered in a the rebates and discounts sometimes given to clinic or physician’s office and billed as a medical payers are being passed along to consumers. claim, are not included in this data set or this Retail Data Description analysis. The Truven Health MarketScan® Research All NDCs were classified by the patent status of Databases comprise 12 fully integrated claims the drug product presentation—that is, patented databases, and contain the largest collection brand name (or SS), off-patent brand name (or of privately and publicly insured, de-identified IMS), or off-patent generic (NMS). We classified patient data in the United States.8 The warehouse both the regular and the specialty drug data sets features an opportunity sample from multiple by patent status. sources (employers, states, health plans), more We sorted the list of all GPI-patent status groups than 20 billion patient records, and 196 million in the merged data set for 2014 by three criteria: covered lives since 1995.9 The data used in (1) total prescription expenditures, (2) number the Rx Price Watch analyses are drawn from of prescriptions dispensed, and (3) days of the Truven Health MarketScan® Commercial therapy provided. The top 500 GPI-patent status Claims and Encounters Database (Commercial categories were identified for each of these three Database) and the Truven Health MarketScan® criteria. Because some GPI-patent status groups Supplemental and Coordination of Benefits appeared in more than one of these top 500 lists, Database (Medicare Supplemental Database). the combined list of all GPI-patent status groups The Truven Health MarketScan® Commercial totaled 627. There were 268 brand name GPI- Database consists of employer- and health plan- patent status groups7 (i.e., both brand single sourced data containing medical and drug source and brand multiple source) and 399 generic data for several million individuals annually. GPI-patent status groups. Also, 101 GPI-patent It encompasses employees, their spouses, and status groups in this combined top 500 list were dependents covered by employer-sponsored classified as specialty drugs. private health insurance. Health care for these The three market baskets (brand name, generic, individuals is available under a variety of fee- and specialty drugs) combined accounted for for-service (FFS), fully capitated, and partially 83.0 percent of all prescription drug expenditures capitated health plans. These include preferred and 82.8 percent of all prescriptions dispensed to provider organizations (PPOs) and exclusive those over age 50 in 2014. provider organizations (EPOs), point of service 7 The current brand name drug market basket originally included 268 widely used brand name drugs. However, fluticasone propionate powder, a corticosteroid used in compounding, had insufficient retail price data in 2017 and was dropped from this analysis. 8 Danielson, “White Paper.” 9 Danielson, “White Paper.” 20 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE (POS) plans, indemnity plans, health maintenance changes for each of the drug products in the organizations (HMOs), and consumer-directed AARP market baskets. health plans.10 CALCULATING ANNUAL PRICE CHANGES FOR The Truven Health MarketScan® Medicare EACH DRUG Supplemental Database is composed of data This Rx Price Watch report calculates average from retirees with Medicare supplemental retail price changes for drug products in the insurance sponsored by employers or unions. following ways: In 2010, 14 percent of the 46.5 million Medicare beneficiaries received their drug benefits • The annual point-to-point percent change in retail price is the percent change in price for a through a retiree coverage plan.11 The Truven given month compared with the same month Health MarketScan® Medicare Supplemental in the previous year (e.g., January 2017 v. Database includes the Medicare-covered portion January 2016, February 2017 v. February 2016). of payment, the employer-paid portion, and any patient out-of-pocket expenses. The database • The 12-month rolling average percent change in retail price is the average of the point-to- provides detailed cost and use data for health point changes over the preceding 12 months. care services performed in both inpatient and For example, the average annual retail price outpatient settings. changes for 2017 refer to the average of the The retail price data drawn from the Truven annual point-to-point price changes for each Health MarketScan® Commercial Database of the 12 months from January 2017 through and Truven Health MarketScan® Medicare December 2017 compared with the same Supplemental Database had to meet several months in 2016. conditions in order to be included in the analysis: We calculated average annual price changes 1. Claimant must be age 50 or older for each drug product for each month and year that the drug was on the market from 2006 to 2. Claim must have a value of greater than zero 2017. The first step was to calculate the annual in the following fields: point-to-point percent change for each month by a. Total payment amount comparing the price in a specific month with the b. Metric quantity same month in the previous year (e.g., January c. Ingredient cost 2017 v. January 2016, February 2017 v. February d. Days’ supply 2016). The next step was to calculate the average e. Average wholesale price of these annual point-to-point changes for the 12 months in each calendar year. For example, 3. Payment amount cannot be less than average annual price changes for 2017 refer to the 100 percent of the ingredient cost average of the annual point-to-point price for each 4. Claim must come from a noncapitated health of the 12 months in 2017. This 12-month rolling plan. average tends to be a more conservative estimate of price changes than the point-to-point method Truven Health Analytics then combined the (i.e., a simple percentage change for a single two databases and provided the AARP Public month from the same month in the previous Policy Institute with data sets that included year), and it accounts for seasonal variations in the monthly median (as well as the 25th and drug manufacturers’ pricing policies. 75th percentile) retail price from January 2005 Table A-1 shows how 12-month rolling average through December 2017 for all of the drug price changes are calculated. Suppose, for products in the Rx Price Watch market baskets. example, that drug A had the following pattern We then compiled the monthly median retail of price changes in 2017 when compared with the prices in spreadsheets designed to track price same month in 2016: 10 Danielson, “White Paper.” 11 Danielson, “White Paper.” TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 21 In this example, the retail price of drug A was example, Table A-2 shows that the sample from 2 percent higher than the price for the same which drug A was drawn has 10 drugs (we chose months in the previous year, for the period from this small sample size to simplify this illustrative January through April 2017. A price hike in May example). The second column of Table A-2 gives increased the percentage difference to 3 percent the average annual price change for each of these for each of the subsequent months in 2017. The drugs, denoted as drugs A through J. A straight 12-month average of these price differences is (or unweighted) average, which adds up individual (2.0 + 2.0 + 2.0 + 2.0 + 3.0 + 3.0 + 3.0 + 3.0 + 3.0 + values and divides by the number of drugs, 3.0 + 3.0 + 3.0)/12, or 2.67 percent.12 would result in an average annual price change of 4.76 percent for the drugs in this hypothetical CALCULATING AGGREGATE AVERAGE PRICE sample. Assuming the hypothetical changes in the CHANGES ACROSS MULTIPLE DRUGS dollar cost of therapy for these drugs, shown in To aggregate price changes for multiple drugs, we the third column, the straight average change in calculated a weighted average of price changes the annual cost of therapy would be $236.13. by weighting each drug’s annual price change (calculated from the Truven Health MarketScan® A straight average, however, does not account for Commercial Database and the Truven Health the actual impact of price changes because it does MarketScan® Medicare Supplemental Database, not account for each product’s “weight” (or share) as shown in the hypothetical example in within the sample (i.e., it gives equal weight to Table A-1) by its share of total 2014 prescription price changes of both commonly used drugs and sales within its given market basket (i.e., brand drugs that are used less frequently). As a result, name, generic, specialty, or combined). As an it does not accurately capture the average impact Table A-1 Average Annual Percent Change in Price for Hypothetical Prescription Drug A, 2017 Jan 16– Feb 16– Mar 16– Apr 16– May 16– Jun 16– Jul 16– Aug 16– Sep 16– Oct 16– Nov 16– Dec 16– Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Average 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.67 Table A-2 Average Changes in Price and Cost of Therapy for 10 Hypothetical Prescription Drugs, 2017 Weighted Unweighted Unweighted Share Average Weighted Average Annual Average Change of Total Annual Average Change in Drug Price Change in Cost of Therapy Sales Price Change Cost of Therapy Name (%) ($/year) (%) (%) ($/year) A 2.67% $623.48 15% 0.40% $93.52 B 10.00% $108.68 14% 1.40% $15.22 C 2.67% $433.68 7% 0.19% $30.36 D 8.00% $ 54.08 10% 0.80% $ 5.41 E 1.50% $162.76 5% 0.08% $ 8.14 F 4.33% $ 54.08 14% 0.61% $ 7.57 G 6.40% $216.84 2% 0.13% $ 4.34 H 3.25% $433.68 18% 0.59% $78.06 I 7.80% $ 27.04 13% 1.01% $ 3.52 J 1.00% $247.00 2% 0.02% $ 4.94 TOTAL 4.76% $236.13 100% 5.22% $251.07 12 If the drug was introduced to the market in July of the previous year, then the price change for the given year is averaged using only the six months that the product was on the market in the previous year (i.e., July through December). 22 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE of price changes in the marketplace. In Table A-2, Health MarketScan® Commercial Database, drugs with low price increases in percentage and the Truven Health MarketScan® Medicare terms (drugs E and J) account for a small share Supplemental Database. The 2014 weights keep (7 percent) of total 2014 sales for the specific the market basket constant over time so that the group of drugs analyzed. By contrast, drugs with change in prices would be a function of price the highest percentage changes (drugs B, D, and changes alone and not a function of changes in I) account for a much larger share (37 percent) market basket utilization or mix. of sales. To reflect the relative importance of However, some drugs that were in the 2014 each drug’s price change in the market basket sample were not on the market in all earlier of products, we weighted each annual price years. We dropped these drug products from change by the drug’s share of total 2014 sales. In the analysis in the month before they entered this simple example, the weighted average price the market and for all previous months, and increase in 2017 is the sum of recalculated the weights of the products present (Unweighted average price change for drug A × in the market prior to 2014 to reflect their relative drug A’s share of total sales) + share of the total sales as adjusted to reflect only (Unweighted average price change for drug B × drugs on the market during that period. drug B’s share of total sales) + For example, suppose that drugs I and J in (Unweighted average price change for drug C × Table A-2 were not on the market in 2011. drug C’s share of total sales) + Furthermore, assume that total drug spending in 2014 was $100,000. To capture the loss of drugs I … + (Unweighted average price change for drug J × and J from the analysis for 2011, the weights are drug J’s share of total sales), redistributed across the drugs that remain in the or analysis (drugs A through H); the new weights (2.67 × 0.15) + (10.0 × 0.14) + (2.67 × 0.07) + … + (1.0 are still based on their 2014 sales but as a share × 0.02). of total sales for the smaller number of drugs in the analysis for the year. In this example, the The results of this calculation are in the fifth total 2014 sales of drugs on the market in 2011 column of Table A-2, which shows that the would be $85,000 without drugs I and J. Drug A’s weighted annual average price change for the $15,000 in sales, which represented 15 percent of drugs is 5.22 percent, or approximately one-half sales for all 10 drugs, rises to 18 percent of sales a percentage point higher than the unweighted when I and J are excluded. This weight, along average of 4.76 percent. The weighted dollar with the analogous weights for drugs B through change in the annual cost of therapy would be H, was used to derive the weighted average price $251.07, compared with the unweighted average change for 2011 (see Table A-3). dollar change of $236.13. Weighting the previous years’ price changes by CALCULATING AVERAGE PRICE CHANGES 2014 sales potentially creates a bias relative to ACROSS MULTIPLE DRUGS FOR YEARS using each specific year’s sales as the basis for BEFORE 2014 assigning weights for that year. Using 2014 sales The process for aggregating price changes for gives more weight to drugs that, relative to other multiple drugs pre-2014 is similar to that for 2014. drugs, had high rates of sales growth in 2014 or Average price changes for 2006 through 2013 were earlier years compared with the year analyzed. derived by first calculating the rolling average In general, however, newer drugs initially have annual price change for each drug (as shown higher rates of sales growth, but relatively lower in Table A-1), then weighting each drug’s price rates of price growth, than do older drugs. This change by its share of total sales in the sample. pattern occurs both because newer drugs may The weights used for all years in this study are have been introduced at higher prices and because from 2014 sales from the Medicare Part D plans price increases for brand name drugs tend to of a Medicare Part D plan provider, including accelerate in rate and amount closer to the end of the AARP plans, as well as from the Truven a product’s effective patent life. TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 23 Table A-3 Recalculating Weights When Prescription Drugs Drop out of the Sample 2014 Weights 2011 Weights Share of Value of 2014 Sales of Drugs 2014 Share of Drugs 2014 Sales 2014 Sales on Market in 2011 on Market in 2011 Drug Name (%) ($) ($) (%) A 15% $15,000 $15,000 18% B 14% $14,000 $14,000 16% C 7% $ 7,000 $ 7,000 8% D 10% $10,000 $10,000 12% E 5% $ 5,000 $ 5,000 6% F 14% $14,000 $14,000 16% G 2% $ 2,000 $ 2,000 2% H 18% $18,000 $18,000 21% I 13% $13,000 − − J 2% $ 2,000 − − TOTAL 100% $100,000 $85,000 100% CALCULATING ANNUAL COST OF THERAPY as marketed by the parent firm. This includes FOR A DRUG PRODUCT cases in which the firm marketing a drug product To assess the impact of price changes on dollars may have changed over time due to mergers spent, we calculated an annual cost of therapy for and acquisitions, divestitures of specific drug each drug product. This annual cost of therapy products, or for other reasons. The analysis analysis excludes drug products in the market of drug manufacturers reported separately on basket that are used primarily for treatment of manufacturers with at least two drug products acute conditions or that are typically taken for a (at the NDC level) among the most widely used limited period of time. The amount of a drug that drugs. an average adult would take on a daily basis was determined using the “usual daily dose” reported DEFINING THERAPEUTIC CATEGORY in the Medi-Span Price Rx Pro® database. Drug products can be classified by the therapeutic When this information was not available from purpose for which they are used. If a drug has Medi-Span, we used dosing information in the multiple uses, the most common indication FDA-approved labeling for the drug product. The typically becomes the classifier. To group drug weighted average annual cost of therapy was also products in this study into similar therapeutic calculated using the 2014 sales volumes to weight categories, we used Medi-Span’s therapeutic the annual cost of each drug product to produce coding scheme, known as the GPI code. the aggregate annual cost of therapy across all The therapeutic categories used in this study drug products in the study’s market basket. use an intermediate GPI-level code that specifies the groupings of similar chemical entities such DEFINING MANUFACTURER as “Proton Pump Inhibitors.” A brand name We defined a drug manufacturer as the firm therapeutic category may include drug products marketing the drug product under its corporate that are brand single source or brand multiple name in 2014. If a listed manufacturer is a source. division of another firm, we defined its drugs 24 TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE Appendix B Therapeutic Category Acronyms Therapeutic Category Definition CNS Agent, Misc CNS – Central Nervous System DMARD DMARD – Disease-Modifying Anti-Rheumatic Drugs JAK Inhibitors JAK – Janus Kinase Antiretrovirals – NNRTI NNRTI – Non-Nucleoside Reverse Transcriptase Inhibitors TRENDS IN RE TAIL PRICES OF SPECIALT Y PRESCRIP TION DRUGS: 2017 YE AR-END UPDATE 25 Research Report 2019-16, June 2019 © AARP PUBLIC POLICY INSTITUTE 601 E Street, NW Washington DC 20049 Follow us on Twitter @AARPpolicy on facebook.com/AARPpolicy www.aarp.org/ppi For more reports from the Public Policy Institute, visit http://www.aarp.org/ppi/. https://doi.org/10.26419/ppi.00073.001