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10 drugs to cost government $50B over next decade

An eye-popping bill for just a handful of specialty medications is in the pipeline for the federal government—and therefore, taxpayers—in the next 10 years, the health insurance industry's lead trade group warned Monday.

"We are witnessing a return to dramatic increases of year-to-year drug spending," said Dan Durham, interim CEO of America's Health Insurance Plans.

The research, commissioned by AHIP and prepared by the Avalere Health consulting group, projects the federal government in the next decade will have to spend almost $50 billion on just 10 so-called breakthrough medications alone, with most of those drugs having yet to hit the market.

Those breakthrough medications—for certain cancers and chronic conditions, such as hepatitis C—get priority or expedited review for approval from the Food and Drug Administration.

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Most of the projected spending will come from $31.3 billion in increased drug costs tied to Medicare, the federal health insurance program for senior citizens, according to the research.

Another $16 billion in costs will be paid by Medicaid, the government health coverage program for the poor. The remaining amount, more than $2 billion, will come from spending on subsidies for customers of government-run Obamacare health insurance exchanges, Avalere estimates.

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The projection does not include potential costs from the drugs to other government-run health programs, such as the ones that cover current and former members of the military. Nor does it include costs from use of the drugs for purposes other than those stated on their label, the out-of-pocket costs to insured people from them, or the costs to commercial insurance plans.

As a result, Durham said, the nearly $50 billion tab "is a very conservative estimate in our view."

"We expect spending to significantly increase beyond this figure," he said.

Durham said that although patients "rely on innovative, lifesaving medications ... soaring prices jeopardize access for those who would benefit the most from these treatment."

He called for more transparency in the justification for prescription drug costs and for "a sustainable pricing solution that will ensure patients can access the medications they need."

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Durham noted that the projections related to breakthrough drugs represent just a fraction of the increased national spending on medication, which reached a record $374 billion last year. That was 13 percent more than in 2013, and was the biggest percentage hike in a decade. Almost half of the percentage increase was due to breakthrough therapy and specialty drugs.

The drugs eyed by Avalere for its study included three that came on the market in the past six months: Viekira Pak for hepatitis C, Ibrance for breast cancer, and Eylea for diabetic retinopathy. The others are due to come to market this year through 2020, and include a new cystic fibrosis drug from Vertex Pharmaceuticals called Orkamib, and Rociletinib for lung cancer.

Avalere selected the drugs for analysis that were likely to generate the highest revenue for the makers over the next decade.

"These 10 drugs represent a small subset of the more than 5,400 medications in the drug pipeline," AHIP said in a statement. "With many more drug manufacturers seeking breakthrough status and more than half of the total pipeline in later stages of clinical development ... total prescription drug costs are expected to dramatically increase in the coming years."

AHIP's membership consists of insurers whose plans cover much of the costs of medications. AHIP has been vocal in its complaints about these expenses, particularly after the introduction in 2013 of the hepatitis C medication Sovaldi, which costs $84,000 for a standard treatment regimen.

Sovaldi's cost, Durham said, is emblematic of the trade-offs between the benefits of a medication and "prescription drug prices that defy gravity."

But the Pharmaceutical Research and Manufacturers of America, which represents leading biopharmaceutical researchers and biotechnology companies, said AHIP's criticism and singling out of breakthrough drugs to make its case isn't justified.

"They're cherry-picking a handful of medicines to tell a false story about recent cost trends," said PhRMA spokesman Robert Zirkelbach.

He said that spending on drugs in the U.S. is the same share of overall health spending now as it was in 1960—10 percent—"and it's the same percentage that the federal government projects over the next 10 years."

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He noted that "eventually all of the medicines" whose high price tags have gotten attention "will come off patent, and the prices will fall dramatically, often 80 or 90 percent," which frees up resources to pay for other health care.

Zirkelbach also said that the Avalere research does not, in assessing the costs of the drugs to the federal government, factor in the financial savings realized from treating patients, and avoiding other health conditions or treatment they would otherwise need without the medication.

"It's not looking at the value that the medicines provide to patients in the health-care system," he said.

"We do know that the cost of disease is growing [at an unsustainable rate] and medicines are the solution to those cost challengers."

Correction: An earlier version of this story, which included information contained in a report by Avalere Health, incorrectly stated that the drug Kalydeco had not yet been launched for sale. In fact, Kalydeco went on sale in 2012. The new indication for cystic fibrosis that Avalere was highlighting in its report uses Kalydeco in combination with another drug, lumacaftor, and will be marketed under the name Orkambi. At the time that Avalere did its analysis and completed the first draft of the paper, the new name for this combination was not yet announced. The drug's manufacturer, Vertex Pharmaceuticals, says an FDA decision on whether to approve Orkambi is expected in July, and if it is approved the company plans to launch the drug immediately thereafter, not in 2016 as Avalere's report on Monday had stated. Avalere says that its overall cost projections in the report are not affected.