Drug prices are again a pain point for 2024 and remain a challenge for pharmacy and hospital/health systems in general. Drugs continue to be a major component of overall healthcare spending. In 2021, retail prescription drugs accounted for more than 16% of fully insured private health plan premiums after rebates, and that number has continued to rise.
Median prices of new and existing drugs are expected to rise. The U.S. Food and Drug Administration’s Center for Drug Evaluation and Research noted the median annual price for approved new drugs increased from $180,000 in 2021 to $222,000 in 2022. Pharmacy trends are not expected to slow down in 2024, especially considering the combined impact of newly-approved cell and gene therapies and more expensive specialty drugs (9% of drugs approved in 2008-2013 cost $150,000 or more annually, compared to 47% of those approved in 2020-21). Predicts that the inflationary impact of pharmaceutical pricing will be in the high single or double digits from 2023-2024.
Inflation Reduction Act
The Inflation Reduction Act (IRA) granted the Centers for Medicare and Medicaid Services (CMS) the ability to negotiate prices for the first time. However, the impact of price negotiations on the first 10 drugs will not begin until 2026, providing no relief in 2024. Given the contentious split between political parties in the IRA, it is doubtful that any additional congressional action directed toward drug manufacturers will be coming in 2024. However, the IRA incidentally impacted the cost of insulin in 2023, when the three largest insulin manufacturers reduced the price of insulin products. We will continue to see this trend into 2024 and can adjust budgets based on this new lower price.
Biosimilar Specialty Drugs
Last year in our Top 10 specialty pharmacy projections, we highlighted the potential impact of biosimilar specialty drugs, particularly adalimumab. That was certainly on point and will continue in 2024 to be a potential “cost deflator,” as the prices of biosimilars can be 50% lower than their reference products. Using the adalimumab example, Amgen launched its adalimumab biosimilar, Amgevita™, in January 2023. To date, the FDA has approved nine adalimumab biosimilars. Even though all biosimilars are not interchangeable, the overall adoption of biosimilars to specialty drugs has substantial potential to help reduce drug costs in 2024.
Pharmacy Benefit Managers (PBMs)
PBMs and their impact on drug prices will continue to be in the spotlight for 2024, and there is some hope of congressional action. The prime criticisms of PBMs are a lack of transparency, a rebate extraction system that causes price increases, various opaque fees, and increasing vertical integration with insurers and pharmacies. As a result, PBMs can tip the pharmaceutical market in their favor while extracting larger and larger profits.
A report by Nephron Research highlighted these issues, noting that fees paid to PBMs have more than doubled in the last five years. Despite various bipartisan and internal struggles that have derailed congressional involvement on this issue, several bills addressing PBMs are under consideration. Congress is working to advance a package called the Lower Costs, More Transparency Act that includes PBM provisions. The bill focuses on more than just pharmacy benefits; it includes measures that would require PBMs to provide employers with extensive data, ban spread pricing in Medicaid, and boost fee disclosures and PBM compensation.
Drug shortages will continue to be a hidden driver of elevated drug costs in 2024, often forcing the use of more expensive alternatives. As we saw with the tornado that hit the Pfizer plant in North Carolina earlier this year, natural disasters continue to play a role in exacerbating the drug shortage problem. Pfizer announced that the penicillin shortage will last into next year, and others have reported that the GLP-1 Ra diabetes medication shortage is not expected to be resolved until mid-2024. The ADHD medication shortage is also likely to continue into next year.
Drug shortages will continue to contribute to increased drug costs in 2024. However, some relief may be in sight, as the FDA is working with several 503B Voluntary Outsourcing organizations to fast-track production of some critical injectable medications. Although many 503B companies still continue to struggle to meet accreditation standards and good manufacturing practice (cGMP) requirements, making it hard for health systems to fully rely on them.
Healthcare Disruptors to Help Control Costs in 2024
Disruptors are also taking a larger position in the hospital and health system market. As we mentioned last year, Civica Rx and Mark Cuban Cost Plus Drugs (MCCPD) continue to expand their portfolios and increase their market. However, new to the market this year was RxPass from Amazon Pharmacy. RxPass allows Amazon Prime members to pay $5 a month to obtain as many generic drugs as needed from their list of 50 medications. RxPass will be in direct competition with MCCPD. But RxPass is already integrated into thousands of more pharmacies than MCCPD and offers rates at a steeper discount. Although these companies largely target generic medications, their impact on the drug market will continue to be felt in the coming year.
5 Actions to Consider
For 2024, pharmacy engagement to address drug costs will be critical. Here are five actions you can take to help control costs:
- Support formulary management to provide the portfolio of drugs representing the best therapies and pharmaco-economics for hospitals and health systems.
- Work with prescribers to select and utilize high-cost drugs in an optimal manner and the appropriate setting.
- Work with hospital human resources/benefits to create an optimal PBM approach for employees and at-risk populations managed by the organization.
- Work with prescribers to proactively address the best alternatives in drug shortage situations.
- Support care transitions to the outpatient setting. It will be critical for pharmacists to ensure complete and accurate medication reconciliation, as well as lean pharmacy operations with minimal waste.
To learn more, read our full summary of the top 10 issues facing health system pharmacy in 2024.
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