Why have generic drug prices increased?

Over the last couple of years, generic prices increased rather substantially, spurring Congress to open an investigation after reports indicated retail pharmacy generic prices increased 37% over three months.  Congress is a bit late to the party, as it appears prices may be stabilizing after a rather dramatic run-up; more on that in a minute.

Generics make up about 80% of all drugs dispensed in the real world, and a slightly higher percentage in workers comp.

Usually, generic prices for specific drugs decrease over time.  The “usual pattern” changed about two years ago, when a popular and generally accurate price measure showed median generic prices were essentially flat over a twelve-month period ending in July 2014.  

More tellingly, the same assessment showed the average price increase for drugs that went up in price was almost twice as much as the average decrease for drugs with prices that dropped.

Of course, there’s a lot of variation among and between drugs.  Workers comp generic prices jumped from as much as 19% across the board according to TPA Broadspire.  And the largest work comp PBM, Helios, reported generic prices increased 10% in their most recent drug trend report.

So, what’s going on and why?

First, let’s stipulate that drug “price” is a very complicated term.  “price” is supposed to be what one pays for one unit of a service, or in this case, a good.

Things are a lot less clear in the world of drugs; there are many different pricing methodologies and definitions, all with pluses and minuses.  For our purposes, we’ll look at two generally-accepted metrics – AWP and NADAC.

AWP – known as “average wholesale price” or perhaps more accurately “ain’t what’s paid” is the price the drug’s manufacturer reports to the national drug price compendia – Medispan et al.  There is no auditing, no validation, no way to determine if an AWP actually reflects reality – and in many cases it doesn’t.

AWP is the basis for workers’ comp drug fee schedules in those states that have fee schedules.

NADAC is the national average drug acquisition cost, and is seen as a more accurate reflection of the real price buyers pay.

A shortage of some key drugs is a major contributor. Tetracycline and acetaminophen/ codeine drugs are among those in short supply; prices for tetracycline have exploded, up 7400% to 17,000% from 7/2103 to 7/2014.

There are anecdotal reports of shortages of chemicals needed to manufacture some drugs as well.

Some very old drugs have very few manufacturers.  Investors, seeing this as an opportunity, have snapped up companies making these drugs, consolidated the manufacturing, and gained pricing power.

Another reason for generic price inflation is a lack of competition among manufacturers.  The FDA has to approve new generics, and of late they’ve been quite backed up in their approval process for new generics.   In addition, there are reports that the FDA is loathe to approve many offshore drug manufacturers.  While this is in all likelihood due to significant concerns over processes and safety and other manufacturing and consumer protection issues, if many Indian manufacturers are not able to sell into the US, price competition suffers.

There’s also been significant consolidation among generic manufacturers, leading to fewer companies making specific drugs.  In turn, that means buyers have less success pitting one manufacturer against others.

Finally, my sense is drug manufacturers are raising prices for a simple reason – because they can.  With more Americans now covered by health insurance, there is a bigger market of buyers less concerned about price than they were before they had coverage.  And, there’s pent-up demand as people who needed but weren’t taking drugs now have access to those medications.

Recent price increases are no surprise to those who saw the same thing happen after Medicare Part D implementation; when seniors got their drug cards, the drug industry got a windfall.

Where next?

Of late, price increases have moderated significantly; about half of the generics increased in price (averaging 5.3%).  For those that declined in cost, the drop was almost the same at 5.1%.

I’d expect generic drug price inflation to continue to moderate; the FDA has committed to decreasing the approval backlog and new manufacturers will almost certainly see an opportunity, thereby adding suppliers.

Drug formularies and workers’ comp

There’s a LOT of activity around the country related to drug formularies.  Four states (OH OK TX and WA) have implemented formularies and at least 4 more are considering doing so (CA, ME, MT, TN). (AR was scheduled to do so this year but pulled back)

The “Why?” is obvious; the proliferation of opioids, inappropriate prescribing of other drugs (Soma(r)), exploding volume of compounding, and rampant off-label use of drugs is seen as a major problem in work comp.

The “What”, as in, what formulary to use, is demonstrably not obvious.

There are (roughly speaking) three varieties of formularies;

  • Open – pretty much any drug is available to anyone
  • Closed – a binary, or yes/no formulary that is drug-centric
  • Disease state/Condition-specific – formulary based on the underlying diagnosis and disease state (e.g. acute v chronic)

The closed formulary has some advantages – it is very simple and easy to understand, and from a regulatory perspective, administer and evaluate.

The closed formulary also has some rather significant issues.

  1. it starts with the drug, not the patient’s medical condition.  This strikes me as backwards; guidelines should ALWAYS begin with the diagnosis.
  2. problems arise when “Y” drugs are dispensed, paid by the PBM, then the payer determines the drug is for an unrelated condition. Think antihypertensives, insulin replacements or asthma meds.
  3. it does not differentiate between acute and chronic stages of a disease or condition; treatment can be quite different for these different stages.

What does this mean for you?

While the closed formulary is easy to explain, it’s a lot tougher to manage on the back end for payers, PBMs, and prescribers alike.

And, while I’m no clinician, allowing antihypertensives and duragesic patches without a prior auth no matter the diagnosis, while requiring a PA for benadryl does seem problematic. 

PDMPs – what they are and why you should care.

Prescription Drug Monitoring Programs are state-based databases containing patient, prescriber, and pharmacy-specific information on controlled substances.

49 states have PDMPs; the lone holdout is Missouri, due to a whack job legislator who’s totally unfounded worries about privacy are preventing the Show Me State from showing dangerous prescribing and dispensing.

There is little consistency among and between the states.  Some require docs and pharmacies to access the PDMP before prescribing/dispensing drugs while most do not.  Some have data on all controlled substances, others do not. Some are relatively easy to use, many are not.

As a result, while 72% of docs know about their state’s PDMP, only half regularly access it.

Fortunately, at long last the AMA has gotten behind PDMPs, and is promoting best practices (after it determines for itself what those best practices are).

The AMA’s committee members would be well served to immediately and extensively collaborate with Brandeis University’s PDMP Center for Excellence. The CoE is the nation’s leading authority on PDMPs, and recently recommended payers have access to prescribing and dispensing databases.

For those looking for information on practical experience with PDMPs, a session at the most recent Rx Drug Abuse Summit provided a solid overview of current limits and best practices.  These include:

  • PDMPs should include data on all controlled substances
  • prescribers and dispensers of controlled substances should check the PDMP before prescribing or dispensing these drugs.
  • PDMPs should push information to prescribers/dispensers when there is solid evidence of high-risk behavior
  • payers and PBMs should be able to access PDMPs as they are responsible for authorizing and processing scripts.
  • PDMPs should be “interoperable”; that is, they should share data across state lines.

The reason we need PDMPs is blindingly obvious – abuse is rampant and deadly.  Extensive research shows effective PDMPs are implemented, opioid abuse – and use – declines, and the adverse impact of opioids does too.

After hundreds of thousands of deaths from opioids; billions and billions of dollars wasted on drugs that, in many cases, do far more harm than good; and the unspeakable tragedy inflicted on families and society, we now know that opioid manufacturers’ insatiable drive for profits led some companies to outright lie about the consequences and costs.

Here’s a brief but chilling film using Purdue Pharma’s own video to damn the company.  

Later this week, I’ll report on how PDMPs can be made much easier to use, cheaper to implement, and far more effective.

What doe this mean for you?

If anyone asks if payers should have access to PDMP data, the answer is yes.

Drug testing explained – part 2

Yesterday’s post about testing work comp patients for opioids struck several nerves; perhaps the most sensitive involves frustration on the part of payers unhappy about paying for tests prescribed by docs who don’t read the results.

That and the outrageous prices charged – and paid – in some states by some labs/physicians.

In addition to several public commenters, I heard from two medical directors yesterday about docs who order tests and never take action when the results are “inconsistent” with expectations.  Over the last few weeks I’ve have had similar conversations with pharmacy directors at two large state funds.  Simply put, these folks are happy to promote best practices, but do NOT want to pay for tests that are never read.

What’s a payer to do?

First, watch the coding and reimbursement very carefully; your medical bill review function may be able to help identify inappropriate coding and/or coding that looks to be primarily reimbursement-driven.

Second, direct away from those providers engaged in unacceptable billing practices.  Yes, I understand you cannot force claimants to use or not use specific providers in some states.  I also know payers can encourage/recommend/channel/suggest/educate claimants about specific providers; Express Scripts had some solid results by educating patients about physician dispensing, and their lessons learned can inform your approach.

Third, make the high billers’ lives difficult by doing everything possible to reduce reimbursement; require medical necessity statements, require evidence that the test was actually done, reduce reimbursement by whatever legal means necessary.  I’ve talked to a couple payers who have successfully battled physician dispensers using this tactic; one roundtabled the issue with adjusters who came up with several very creative and effective ways to make life extremely difficult for companies billing for physician-dispensed drugs.

And the adjusters really enjoyed it…

For docs who don’t read the tests they have ordered, an outreach program wherein a test with aberrant findings triggers a case manager contact with the treating physician is in place at several payers.  While this – like everything else in workers’ comp – is no panacea, it does alert the treating doc that there’s a problem.

There is also technology available and currently in use that can determine if a document emailed to a recipient is opened.

Worst case, the payer can use this information if the claim goes to litigation, and/or to seek a change in physician, and/or to demonstrate culpability on the part of the physician if the patient has an adverse event.

What does this mean for you?

Drug tests are a tool; used correctly they can be very helpful.  But tests that are bought and never used are a waste of money. And using the wrong test is like trying to tighten a bolt with a hammer.

Drug testing (partially) explained

Once more we will delve into the minutiae of an issue…this time into testing patients who are prescribed opioids to ascertain if they are taking the prescribed medications, and if there is evidence they are consuming other licit and/or illicit drugs.

(full disclosure – Millennium Health, the largest toxicology testing company, is a consulting client)

All guidelines suggest/encourage/require testing of patients prescribed opioids.  

There are two types of urine drug tests – qualitative, where a cup test simply indicates if a drug is or is not present, and quantitative, which is much more accurate and must be done in a lab.

I’m surprised at the continued use of qualitative tests as they are notoriously unreliable; research indicates the cup test failed to show benzodiazepines were present for 28% of specimens, and cocaine for fully half of specimens evaluated – and false negatives and positives for other drugs are much higher than one would expect.  These “false negatives” are obviously misleading; the usefulness of cup tests is further compromised by how easy they are to fool. (there are about a gazillion web pages that provide info on passing a cup test…)

Say you are prescribed Oxycontin, but haven’t been taking the pills.  You’re scheduled for an office visit, have sold your pills, and don’t want to get caught.  You can rent pills to pass a pill count, and if you’re asked to pee in a cup, you can shave one of the pills into the cup, thereby adding the chemicals that will show you are compliant.
Voila!  you’re clean!

Except, if your sample gets sent to a lab for quantitative testing.  It is much harder to fool good lab testing because the testing equipment:

  • uses much lower cutoff levels for drugs, thereby finding more positives than cups do;
  • tests for metabolites – the chemicals created by your body after it processes the drugs: metabolites show you’ve actually taken the drug
  • checks for certain chemical markers that can indicate if the urine is fake or from another person (or, in some cases, another animal)

There’s much more to this; warning, if you start looking around on the web, you’ll find some incredible stories and myths and tales about folks allegedly passing tests; great for entertainment but very easy to become mesmerized for hours.

I recently reviewed data from a very large sample, specifically looking for data about cup results vs lab (quantitative) results.  The analysis was rather disturbing…Cup tests missed:

  • 45% of opiates (cup reported no opiates, lab reported opiates)
  • 44% of benzodiazepines
  • 28% of marijuana

Cup tests also indicate drugs are present when the lab tests show they are not, false positives occurred in:

  • 27% of reported opiates
  • 69% of antidepressants
  • 100% of PCP

What does this mean for you?

Be very careful about basing decisions on cup tests – even if they show there aren’t any anomalies or “unexpected” results.

Work comp drug trends; Coventry’s report

Coventry’s work comp PBM – First Script – released their drug trend review last week; they’ve taken a bit of a different tack than other PBMs, choosing to report broadly across all scripts while differentiating between “managed” (in-network retail/mail and contracted physician and clinic dispensed) and unmanaged scripts.  Note that Coventry reports on compounds separately.

The report is replete with infographics used to highlight cost trends, workflows and decision processes, charts and graphs which make it quite readable; specific data points and issues are easily located and understood.  Overall, the report is well laid-out and professionally done; as with other recent efforts (including CompPharma’s most recent PBM in WC Survey) drug trend reports have benefited greatly from the expertise of graphic designers.

Physician- and clinic-dispensed medications accounted for 5.1% of spend; retail/mail for about 69% of spend. Opioid dollars totaled about a third of total managed drug dollars.

Key cost drivers include an AWP increase of almost 10% across all drugs. That price increase was somewhat offset by a 5 percent decrease in utilization (7.4% for narcotics) which resulted in an overall cost-per-claim increase of 7.3%.

A key finding is a major increase in generic utilization and spending (mirrored by CompPharma’s soon-to-be-released 2015 report).  Generic spend was up a whopping 19.3% while single source brand spend dropped by 9%; generic forms of Cymbalta and Lidoderm helped drive generic utilization up over 5 percent.

Coventry reported a 4.1% decrease in short-acting (SA) narcotic script volume; long-acting dropped by 3.2%. Vicodin, the #1 prescribed drug, saw utilization drop almost 8%. Unfortunately higher AWP pricing for several common SA narcotics more than offset that decrease in units, driving overall SA narcotic spend up 8 points.

There are helpful statistics on utilization by drug class by age of claim; changes in specific drug spend and utilization year over year, details on what drugs saw the biggest changes in volume and price, charts illustrating various correlations between claim age and pharmacy, and details on compound utilization.

Notably, Terocin(c), a compound, accounts for more unmanaged spend than any other drug; the growth in all topical medications is quite remarkable. In total, compounds accounted for 7.7% of managed spend and 28.1% of unmanaged spend.

Coventry’s report is data-rich, and this is particularly illuminating in their in-depth analysis of compounds.  Trends in utilization and spend by state, claimant usage, and in-network v out-of-network are analyzed in depth.

What does this mean for you?

Compounds are growing rapidly, efforts to control narcotic utilization are bearing fruit, and generic price inflation remains problematic.

WC Rx Survey – early results are in…

We’ve finished collecting the data for CompPharma’s 12th (!) Annual Survey of Prescription Drug Management in Workers’ Comp;  working on compiling and analyzing the data now and expect to get the report out next week.

The survey uses both quantitative and qualitative questions; this enables us to track changes over time to key metrics including network penetration, mail order usage, generic efficiency, and compound drug growth.

The qualitative responses are really helpful in gaining an understanding of what’s keeping payers up at night, where they are seeing success, and how they view key issues.

Here are a few initial findings…

  • Drug management is viewed as more or much more important than other medical issues by 80% of respondents
  • 75% said drug costs will become more important over the next year
  • 2/3rds indicated compounds are the most concerning new issue in WC pharmacy

There’s a lot more analysis to be done as we dig into the qualitative responses. One key area will be the cost and quality control programs payers have implemented over the last 18 months and the results of those programs.

Once the final report is done and proofed, I’ll put up a link.

Public versions of the previous surveys are available free for download (no registration required) here.

 

Work comp pharmacy – it’s getting complicated

That’s the one-word takeaway from a read of Healthcare Solutions latest Drug Trends report.

A decade ago work comp pharmacy was driven overwhelmingly by utilization; ever-increasing volumes of pills prescribed and dispensed to claimants was the primary cost driver.

Now, price and drug mix have become the main concern.

Healthcare Solutions reported drug price inflation rate exceeded 8.6%; 12.4% for brands and 7.9% for generics. Overall, drug costs were up about 4%, indicating efforts to control the type and volume of drugs counterbalanced a good chunk of the industry’s price increase.

In particular, utilization decreased by 3.1%, a result that would have been unthinkable just a few years ago.

In part that was driven by a 1.4% drop in utilization of opioids, led in turn by a 2.1% decrease in usage of hydrocodone/acetaminophen, the most commonly-used opioid.

For those not steeped in the details of drug pricing and work comp, it’s important to understand that what work comp pays is based in large part on prices set by drug manufacturers; these manufacturers do NOT have prices specific to workers’ comp. Essentially all states with fee schedules for work comp drugs base those fee schedules on AWP (which is set by the manufacturer). And, PBMs’ contracts with pharmacies are based to a large extent on AWP; MAC (maximum allowable cost) is also used extensively for some generics)

A great example of price’s impact is the recent introduction of several wildly expensive Hepatitis C drugs; according to HCS, these drugs, “while not common in workers’ compensation, can be significant to a client’s overall drug spend if they do have a claim.  This is especially troublesome for healthcare clients [e.g. hospitals, emergency services].  Treatment can be upwards of $100,000.”

Another notable cost driver was the higher volume and prices for compound drugs; this is consistent with other payers’ experience.

I’d note that Healthcare Solutions’ clinical programs are quite good; I’ve audited those programs twice in the last few years and both the programs and results are excellent.

What does this mean for you?

Managing drug usage requires a lot more expertise, analysis, and intelligence than it used to.  It also requires payors listen to and work closely with their PBM.

The poster children of OxyContin

Back at the end of the last century, a wonder drug was introduced that promised to end pain without risk of nasty side effects.  The drug, OxyContin, was aggressively marketed by manufacturer Purdue Pharma; they even made a video featuring seven users who lauded OxyContin.

Fast forward just fourteen years. The video has disappeared. Two of the seven are dead; they were abusing opioids when they died. Another was also addicted, but overcame her addiction. Three still believe the drug helped them and one wouldn’t respond to questions posed by a reporter looking to find out the fate of the seven.

The story of the seven was reported by the Milwaukee Sentinel Journal; their story was also documented in a video.

It’s a short and utterly devastating piece.

In the original Purdue OxyContin marketing video, a paid physician claimed the drug resulted in addiction in less than 1 percent of cases.  Later, he acknowledged that his statement wasn’t based on any long-term studies.  And that’s just one of the litany of errors, misstatements, exaggerations, and outright falsehoods.

The best evidence we have now indicates from 3% to 40% of long term users are at high risk for addiction.

OxyContin and other Schedule II drugs do have their place.  They have helped many deal with acute pain.  They have also directly caused today’s opioid crisis and the explosive growth in heroin use.

Purdue’s quarterly revenues for OxyContin are about the same as the one-time fine they paid to settle a federal criminal case; with total revenues for the drug in excess of $7 billion, there’s no question it has been hugely profitable for Purdue and its shareholders. 

What does this mean for you?

There’s a rather uncomfortable question lurking here.  The American health care system is in large part driven by profit-making entities.

One can make a compelling case that the opioid crisis is directly related to the profit motive.  Yes, our convoluted regulatory process is involved, as is the tortuous legal process, and lobbying and politics.  But all these are intended to regulate, control, ensure safety and good corporate citizenship.

In this instance, our controls have failed, and failed miserably.

Thanks to Phil Walls of myMatrixx for the heads up on this; his post can be found here.

 

 

Off to the Rx Drug Abuse Summit

The penultimate conference of the “spring” starts today in Atlanta, where the third annual Rx Drug Abuse Summit convenes this afternoon.

Specific to workers’ comp is the third party payer track; great discussions of Prescription Drug Monitoring Programs, the impact of opioids on worker’s compensation, legislative trends, and identifying high-risk claimants.

Thanks to Millennium Health for their lead sponsorship of the Summit; Millennium has been a consulting client for three years and I’m proud to work with them; they are good people looking to do drug testing the right way.

For those looking for additional education, can’t do better than Washington State L&I’s one-day educational conference on Evidence-Based Pain Care.  The sessions will review the new Agency Directors’ guidelines on Prescribing Opioids for Pain. Fifty bucks gets you educational credits, parking, breakfast and lunch…

Updates coming from the Rx Drug Abuse Summit from your loyal reporter…