Mail-Order Drug Spend Up 13.6% In 2004; Overall Rx Growth Slows

Spending on mail-order drugs grew at a rate of 13.6% in 2004, compared to 2% growth at retail outlets, CMS researchers report.

Overall, mail-order drug spending accounted for approximately 17% of total prescription drug sales in 2004, Cynthia Smith et al., CMS National Health Statistics Group, state in an article on national health spending published in the January/February issue of Health Affairs.

The trend continues the deceleration of prescription drug spending overall, a trend apparent since 1997.

Smith et al. note that in the mail-order setting, "pharmacists have more time to switch to lower-cost drugs and to those generating larger rebates, which sometimes leads to larger rebates in turn."

Lower co-pays for mail-order drugs also serve as "an enticement to consumers," the article adds.

The Pharmaceutical Care Management Association said Jan. 10 that the data "are the testament to [Pharmacy Benefit Managers'] work over the past decade to change the way consumers, clinicians and purchasers think about prescription drugs."

"By providing consumers and purchasers with alternatives to the status quo, whether through increased access to generic drugs or by filling prescriptions through a mail-service pharmacy, PBMs have been validated as a proven source for lowering prescription drug costs," PCMA added.

Growth in generic drug spending also contributed to a lower overall national drug spend, the CMS statisticians state.

Generic drugs dispensed grew at double-digit rates for the third year in a row, "driven by both greater demand and increasing supplies," the article says.

Smith et al. note that generics sometimes result in larger out-of-pocket spending than brand name pharmaceuticals. This was the case in 2003 and 2004.

"In contrast to the larger trend, out-of-pocket drug spending outpaced private health insurance spending growth in 2003 and 2004 (9.4% and 7.1%, respectively)," they note.

"As a larger proportion of drugs are dispensed as generics, the lower prices of generics compared with brands results in lower average prices paid," Smith et al. observe.

In response to the study, the Generic Pharmaceutical Association maintained that "Congress and FDA should take steps to further reduce health care costs by creating an abbreviated approval pathway for generic biopharmaceuticals...encouraging further generic substitution; and reducing approval times for generic products."

GPhA has been lobbying for a follow-on biologics framework for some time, but the long-anticipated historical white paper from FDA remains in limbo and congressional leaders have been hesitant to tackle the contentious issue (¹ (Also see "Follow-On Biologics Pathway Unlikely Without Confirmed FDA Commissioner" - Pink Sheet, 28 Nov, 2005.), p. 13).

Rx-to-OTC switches of anti-ulcerants (such as AstraZeneca/Procter & Gamble's proton pump inhibitor Prilosec OTC ) and antihistamines (Schering-Plough's Claritin ), also contributed to lower overall growth in Rx drug spending in 2004.

Healthcare plans have encouraged consumers to purchase OTC anti-ulcerants and antihistamines by moving these drug categories to a third tier of co-payments, the article notes. Additionally, drug plans have encouraged OTC use by mailing coupons to plan members or by dropping coverage of prescription drugs in those categories.

"All of these factors have contributed to a slowdown in the rate of private health insurance spending for drugs to 6.5% in 2004, much slower than its 13.3% average growth in 2000-2002," Smith et al. observe.

Across all categories of payers, retail prescription drug spending increased 8.2% in 2004, the first time in 10 years that there was only single-digit growth in the category.

The continued deceleration in retail drug spending meant prescription drug spending overall remained "steady" from 2003 at about 11% of aggregate health spending in 2004, the article states.

Contributing to this slowdown in growth was "reduced consumption of certain drugs as a result of concerns about their safety," the article says.

Drug spending was 14% of net personal healthcare spending in 2002-2004, a considerable drop from the 23% level recorded in 1997-2000.

"Thus, much of the slowing in overall healthcare spending since 2000 can be attributed to drug spending," Smith et al. conclude.

Total public spending for healthcare rose 8.2% in 2004, accounting for 47% of aggregate growth, up from 43% in 2003, the article states.

Medicare "continued to dominate public spending trends," Smith et al. note, in part due to three provisions in the Medicare Modernization Act that immediately affected spending: higher payments to rural providers, the $440 mil. in subsidies to low-income beneficiaries participating in the drug discount program and increased managed care rates.

However, Medicaid spending "continued its recent slowdown in 2004, in part because of deceleration in drug spending growth associated with continued emphasis on overall cost containment," the article says.

Medicaid drug spending "slowed significantly" in 2004, the CMS researchers report.

"States have been intensifying efforts to contain the rise of drug spending by instituting prior-authorization policies, imposing quantity limits on drugs dispensed; requiring use of generics; negotiating higher rebates, including supplemental rebates; and joining multi-state purchasing pools," the article states.

Despite the slowdown in Medicaid drug spending, it "continued to outpace trends for other Medicaid services, so that drug spending rose from 11.2% of all Medicaid spending in 2000 to 12.5% in 2004," the authors add.

National healthcare spending in total grew by 7.9% to $1.9 tril. or about $6,280 per person, compared to growth of 8.2% in 2003.

In 2004, prescription drugs accounted for an 11% share, "smaller than its increase in recent years and much slower in absolute terms."