High Drug Costs

Karen Ignagni: New Findings Emphasize the Need to Address High Drug Costs

As the incoming Trump Administration and members of Congress are considering wholesale changes to the health care system, the coming weeks and months will involve discussions around how to ensure Americans that they will have health care coverage at a cost they can afford.

This challenge is reinforced by a new federal government report demonstrating the impact of drug pricing on Medicare beneficiaries and taxpayers.  The report finds spending on high-priced drugs – medications with monthly costs of more than $1,000 – in the catastrophic phase of the Part D benefit has grown from $5 billion in 2010 to more than $33 billion in 2015, a nearly seven-fold increase in just five years, with almost a third of this spending for ten medications alone.

The new report also demonstrates how drug pricing policies are affecting real people. The Part D benefit is structured so that once Medicare beneficiaries with the highest needs spend nearly $5,000 out of their own pockets on prescription drugs in a year, they will pay only five percent cost-sharing.

But even with low cost-sharing, beneficiary out-of-pocket spending for these high-price drugs can be substantial. For example, five percent cost-sharing translates to more than $1,300 for hepatitis C drugs Harvoni and Sovaldi, which both cost approximately $30,000 per month in 2015 according to the report.  For beneficiaries with incomes just above the threshold to receive federal assistance, their choice would be between a lifesaving medication, or everything else.

In addition to the impact on beneficiaries, taxpayers are being affected too. The 2016 Medicare Trustees Report projects Medicare Part D costs will increase at an average annual rate of more than nine percent over the next ten years, higher than projected growth rates in both Medicare Parts A and B.  Why?  “Because the prices for high-cost specialty drugs continue to increase” [1].  For these reasons, the new federal report concludes high-price drugs “must be analyzed and addressed to secure the future of the Part D program.”[2]

These trends also are evident in our state’s Medicaid program. Expenditures for high-price drugs during 2016 in New York State Medicaid increased by more than 40 times since 2010, and now amount to almost 25 percent of total drug spending in the state’s program.[3]

This brings us back to the current debate. As we begin 2017, Congress will be discussing a range of health care options, and high drug pricing will be a focal point for discussion.  While our citizens recognize and support the need for lifesaving medications, it is reasonable to require transparency around the reasons high prices are necessary.  Families, employers, and government who are being asked to subsidize high spending have a right to know.

Stay tuned to EmblemHealth Policy Blog for developments in the national debate about the future of the health care system.

[1] 2016 Medicare Trustees Report, page 201.
[2] Department of Health and Human Services Office of Inspector General, “High-Price Drugs are Increasing Federal Payments for Medicare Part D Catastrophic Coverage,” (OEI-02-16-00270, January 2017), p. 12.
[3] Analysis of data from the Centers for Medicare & Medicaid Services.