Monday, December 27, 2021

DMHC Report Shows Prescription Drug Costs Increased $1.5 Billion Over Four Years

Prescription Drug Costs Continue to Outpace Overall Medical Expenses Year-Over-Year Growth

The California Department of Managed Health Care (DMHC) today released the Prescription Drug Cost Transparency Report for Measurement Year 2020. The report looks at the impact of the cost of prescription drugs on health plan premiums and compares this data over four reporting years: 2017, 2018, 2019 and 2020. Among other findings, the report reveals that health plan spending on prescription drugs increased by $1.5 billion since 2017, including an increase of $500 million in 2020.

“This report provides greater transparency into prescription drug costs and provides important information about the impact prescription drug costs have on health plan premiums,” said DMHC Director Mary Watanabe. “This year’s report shows the cost of prescription drugs continued to outpace the growth of overall medical expenses in health plan premiums, with health plans paying more than $10.1 billion for prescription drugs in 2020.”

The DMHC considered the total volume of prescription drugs covered by health plans and the total cost paid by health plans for those drugs. Additionally, the Department analyzed how the 25 most frequently prescribed drugs, the 25 most costly drugs, and the 25 drugs with the highest year-over-year increase in total annual spending impacted health plan premiums.

The report's key findings include:

  • Health plans paid more than $10.1 billion for prescription drugs in 2020, an increase of almost $500 million, or 5%, from 2019. Since 2017, prescription drug costs paid by health plans increased by $1.5 billion.
  • Prescription drugs accounted for 12.7% of total health plan premiums in 2020, a slight decrease from 12.8% in 2019.
  • Health plans’ prescription drug costs increased by 5% in 2020, whereas medical expenses increased by 3.7%. Overall, total health plan premiums increased by 5.9% from 2019 to 2020.
  • Manufacturer drug rebates totaled approximately $1.437 billion, up from $1.205 billion in 2019 and $1.058 billion in 2018. This represents about 14.2% of the $10.1 billion spent on prescription drugs in 2020.
  • While specialty drugs accounted for only 1.6% of all prescription drugs dispensed, they accounted for 60.2% of total annual spending on prescription drugs.
  • Generic drugs accounted for 89.1% of all prescribed drugs but only 18.1% of the total annual spending on prescription drugs.
  • Brand name drugs accounted for 9.3% of prescriptions and constituted 21.7% of the total annual spending on prescription drugs.

California Health and Safety Code (HSC) section 1367.243 (SB 17, 2017) requires health plans in the commercial market to annually report their prescription drug costs to the DMHC. The Department must prepare an annual report summarizing the findings and the impact of prescription drug costs on health care premiums.

This report is part of a larger effort by the Newsom Administration to rein in the costs of prescription drugs. Ongoing implementation of SB 852 (Pan, 2020) advances the Governor's proposal to leverage California's purchasing power to increase generic drug manufacturing as one solution to the prescription drug affordability crisis. The state has already begun to identify potential target medications and develop a strategic plan to promote state-led generic drug purchasing and manufacturing.

California is also transitioning all Medi-Cal pharmacy services from the managed care system to the fee-for-service delivery system, effective January 1, 2022, standardizing the Medi-Cal pharmacy benefit statewide, improving patient access to pharmacy services, and strengthening California's ability to negotiate drug rebates with drug manufacturers.

About DMHC:

The DMHC protects the health care rights of more than 27.7 million Californians and ensures a stable health care delivery system. The DMHC Help Center has assisted approximately 2.5 million Californians to resolve complaints and issues with their health plan. The DMHC Help Center provides assistance in all languages and all services are free. For more information visit www.HealthHelp.ca.gov or call 1-888-466-2219.