Specialty drugs continue to be a growing component of the prescription drug market and have fueled increases in overall prescription drug spending. These drugs are used to treat complex and chronic medical conditions such as cancer, hepatitis C, multiple sclerosis (MS), and rheumatoid arthritis. They typically require special handling, administration, and monitoring, adding to their cost. Spending on non-specialty drugs has decreased in Michigan in recent years, yet total drug spending has increased because of increased spending on specialty drugs, especially with the release of new, high-cost MS and hepatitis C drugs. Treatments for these two conditions rely greatly on prescription drug medication that can save lives and improve patients’ quality of life. But, recent cost increases for drugs like these can often lead to high out-of-pocket costs. Generic drugs offer an alternative to costly branded drugs, with savings up to 80 percent for consumers. However, generics are not available for most specialty drugs. This issue brief examines overall specialty drug cost trends in the United States and Michigan, focusing on high-cost specialty drugs for MS patients, and explores policy implications. The analysis is based on prescription drug data for privately insured patients with prescription drug coverage.1
Specialty drugs continue to be a growing component of the prescription drug market and have fueled increases in overall prescription drug spending. These drugs are used to treat complex and chronic medical conditions such as cancer, hepatitis C, multiple sclerosis (MS), and rheumatoid arthritis. They typically require special handling, administration, and monitoring, adding to their cost.
Spending on non-specialty drugs has decreased in Michigan in recent years, yet total drug spending has increased because of increased spending on specialty drugs, especially with the release of new, high-cost MS and hepatitis C drugs. Treatments for these two conditions rely greatly on prescription drug medication that can save lives and improve patients’ quality of life. But, recent cost increases for drugs like these can often lead to high out-of-pocket costs. Generic drugs offer an alternative to costly branded drugs, with savings up to 80 percent for consumers. However, generics are not available for most specialty drugs.
This issue brief examines overall specialty drug cost trends in the United States and Michigan, focusing on high-cost specialty drugs for MS patients, and explores policy implications. The analysis is based on prescription drug data for privately insured patients with prescription drug coverage.1
In both the United States and Michigan, specialty drug spending increased sharply from 2013 to 2014, largely due to the release of two specialty drugs: Sovaldi, a
curative treatment for hepatitis C, and Tecfidera, an oral medication for MS. Michigan’s overall prescription drug spending grew by 12.2 percent in 2014, compared to only 2.4 percent in 2013.5
Since 2014, national trends for hepatitis C drugs are starting to show declines in both utilization and cost.6 As patients with advanced hepatitis C were cured, utilization decreased. Additional hepatitis C drugs were introduced in 2016, including Zepatier, Epclusa, and Viekera XR, lowering unit cost nationally by 6.7 percent.7
For MS treatment, the unit cost of MS drugs increased by 7.4 percent in 2016, driven by price increases for Copaxone and Tecfidera8, while utilization stayed relatively flat.
Top High-Cost Specialty Drugs: Comparison of Michigan to the United States Within an Insured Population
The per member per year (PMPY) spending for both Copaxone and Tecfidera was higher in Michigan compared to the United States, with Copaxone more than twice the national PMPY rate.9 Michigan’s higher PMPY spending for Copaxone may indicate that more patients needed the drugs and/or that the cost per patient was higher.
MS is a chronic disease that affects the central nervous system and is the most widespread disabling neurological condition in young adults. This disease is often marked by problems with muscle control and strength, vision, balance, feeling, and thinking.10
There are four types of MS: relapsing-remitting MS (RRMS), primary progressive, secondary progressive, and progressive relapsing. RRMS is the most common form of MS and 85 percent of MS patients are diagnosed with RRMS at onset.11 Available treatments for RRMS, such as disease modifying therapies (DMTs), work to decrease the frequency of relapses and delay disease progression.12 MS treatments include injectable or oral medications, depending on a patient’s need. Medication can be supplemented with various forms of alternative treatment, such as vitamin D supplements, yoga, medicinal plants, and physical therapy. There is not good evidence that alternative treatments such as acupuncture, reflexology, or occupational therapy are effective.13
Copaxone, Tecfidera, and Rebif are used to treat RRMS, which is characterized by relapses of increased disease activity followed by remissions. Copaxone is considered one of the best treatments for RRMS and is effective in decreasing relapses by 30 percent.14 Tecfidera, another top MS drug, was shown to reduce the number of relapses by 53 percent during a two-year clinical study.15 However, the effectiveness of MS treatments is highly variable among individual patients, and treatment courses can vary greatly from patient to patient.16
Midwestern states have higher prevalence rates of MS than the United States as a whole17 (165 cases per 100,000, compared to 149.2 cases per 100,000).18 The Midwestern region also has higher prevalence rates than both the Western region19 (110.7 cases per 100,000 people) and the Southern region20 (111.6 cases per 100,000).21 From 2008-2012, prevalence among Midwestern states has increased, while both the Western and Southern regions either saw declines or little change. Figure 3
Research suggests that these regional differences in prevalence rates may be related, in part, to climate and sunlight exposure. This higher prevalence rate of MS in the Midwest is a significant factor explaining Michigan’s higher PMPY spending for MS compared to the national average.
For many patients who need specialty drugs, increases in price translate to higher out-of-pocket costs. Some specialty drugs have had significant price increases since they were released to the market. For example, when the MS drug Copaxone was introduced in the mid-1990s, its annual cost per patient was approximately $12,000 (in 2013 dollars). By 2013, Copaxone’s annual cost per patient was nearly $60,000.22 Most recently, Copaxone reached an annual cost per patient of $89,213.23 Copaxone is considered a first generation disease modifying therapy (DMT) for MS. Since it was introduced, its annual cost increase has averaged 36 percent. Tecfidera, an MS treatment released in 2013, has had cost increases of nearly 14 percent annually.24 Both of these treatments outpaced the price inflation of 3 to 5 percent annually for overall prescription drugs. Most interesting is the fact that even with the introduction of new treatments for MS, the cost for first generation DMTs continues to increase, a trend that goes against traditional economic theory, which suggests more competition in the market should stabilize costs.25 A recent study suggests that one explanation may be that the current U.S. health care system does not have a way to limit price increases, as compared to other industrialized countries.26
Generic Availability and Patent Protection
In 2015, the FDA approved the first generic drug for Copaxone, called Glatopa. This drug is a generic equivalent for one of the Copaxone dosage levels and is a step toward more affordable treatment options for MS patients. Compared to daily Copaxone, Glatopa had estimated annual cost savings of $17,000 per patient in 2016.27 However, savings are not expected to be as dramatic as generics for traditional brand name drugs. This is because cost savings from generics are typically higher when there are more available generics on the market.28 In the case of MS drugs, Glatopa is the only generic available for Copaxone. Most MS drugs have no generic versions on the market.
Some of the more recently introduced MS drugs are classified as “biologic” drugs.29 These medications are derived from animals, humans, or microorganisms such as bacteria or yeast. Biologic drugs are granted 12 years of market exclusivity, compared to the five years given to most brand name drugs.30 For some biologic drugs, biosimilar drugs have been developed. These drugs are designed to be similar to biologic drugs, but they are not exact replications and cannot be true generics because it is impossible to create exact copies of biologic drugs.31 The U.S. Food and Drug Administration (FDA) is now able to approve biosimilar drugs, but there are few on the market.
While biosimilar drugs can be more cost-effective than biologic drugs, they are discounted much less than generic drugs.32 Price reductions for potential future biosimilar drugs might be only between 20 and 40 percent, compared to about 80 percent for traditional generics.33
- Increase price transparency – Requiring drug manufacturers to disclose estimated prices prior to FDA approval could help to inform regulators, the public, and purchasers about the cost structure planned prior to a drug’s market entry. Additionally, drug manufacturers could be required to report on subsequent price increases over certain thresholds. Where generics or biosimilar drugs are available, price transparency for consumers could enable comparative shopping. The bipartisan Fair Accountability and Innovative Research Drug Pricing Act (S. 1131), introduced in the U.S. Senate in May 2017, would require manufacturers of certain drugs and biological products with a wholesale cost of $100 or more per month to report price increases of 10 percent or more in a year or 25 percent or more over a three-year period to the U.S. Department of Health and Human Services.34 Price transparency reporting under this legislation likely would include MS drugs. At the state level, California Governor Jerry Brown signed a high-profile drug price transparency bill, Senate Bill 17, in October of 2017. This bill requires drug manufacturers to notify health plans and other purchasers 60 days in advance of a planned drug price increase if the increase exceeds certain thresholds.35 Heath plans will also be required to submit annual reports to the state of California, providing details on the most frequently prescribed drugs, the most expensive drugs, and drugs that have the greatest year-to-year price increases.
- Reimportation – Importing prescription drugs back to the United States, that were originally manufactured in the United States and exported for sale in another country, could help lower out-of-pocket costs for consumers. Consumer surveys show widespread support to allow Americans to buy prescription drugs from Canada.36 Buying medications from a certified Canadian pharmacy could save Americans between 20 percent to 80 percent on brand name drugs.37 In fact, MS drugs Copaxone and Tecfidera cost significantly less in Canada: Copaxone has an annual cost of approximately $15,000 in Canada, roughly one-fourth of its cost in the United States, and Tecfidera has an annual cost of $21,510 in Canada, less than half its cost in the United States.38 While the FDA has expressed concerns with counterfeits and drug safety—especially with injectable drugs such as Copaxone—the possibility of limited reimportation of drugs, including oral drugs that treat MS, could be further explored. Some experts say that it’s possible that the ability to import drugs from countries that have regulatory systems similar to the United States could help moderate drug prices.39
This year, members of Congress have discussed several drug reimportation bills. In February 2017, senators introduced the Affordable and Safe Prescription Drug Importation Act (S. 469), a bill on drug reimportation. This bill also would allow Americans to buy prescription drugs from Canada. In August 2017, the Congressional Budget Office (CBO) estimated that S. 469 would save consumers $7 billion over the next 10 years.40