Wednesday, December 30, 2020

DMHC Report Shows Health Plans’ Prescription Drug Costs Increased $1 Billion since 2017

Prescription Drug Costs Continue to Outpace Overall Medical Expenses Year-Over-Year Growth
CA Takes Additional Steps to Rein in Prescription Drug Costs

The California Department of Managed Health Care (DMHC) today released the Prescription Drug Cost Transparency Report for Measurement Year 2019. The report looks at the impact of the cost of prescription drugs on health plan premiums and compares this data over three reporting years: 2017, 2018, and 2019. Among other findings, the report reveals that health plans paid an increase of $1 billion on prescription drugs since 2017, including an increase of $600 million in 2019.

"The amount health plans paid for prescription drugs has increased by $1 billion since 2017," said DMHC Director Mary Watanabe. "The cost of prescription drugs is continuing to grow rapidly every year, which is having a real impact on the cost of premiums and the affordability of health care. This report provides greater transparency into prescription drug costs and the impact on health plan premiums."

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 $9.6 billion for prescription drugs in 2019, an increase of almost $600 million from 2018, and $1 billion from 2017.
  • Prescription drugs accounted for 12.8% of total health plan premiums in 2019, a slight increase from 12.7% in 2018.
  • Health plans’ prescription drug costs increased by 6.3% in 2019, whereas medical expenses increased by 5.2%. Overall, total health plan premiums increased by 5.3% from 2018 to 2019.
  • Manufacturer drug rebates totaled approximately $1.205 billion, up from $1.058 billion in 2018 and $922 million in 2017. This represents about 12.5% of the $9.6 billion spent on prescription drugs in 2019.
  • While specialty drugs accounted for only 1.5% of all prescription drugs dispensed, they accounted for 56.1% of total annual spending on prescription drugs.
  • Generic drugs accounted for 88.5% of all prescribed drugs but only 20.9% of the total annual spending on prescription drugs.

Senate Bill (SB) 17 (Hernandez, 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 prescriptions drugs. The recent signing of SB 852 (Pan, 2020) advances the Governor's proposal last January 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 managed care to direct state payment in 2021, strengthening California's ability to negotiate better prices with drug manufacturers.

From his first day in office, the Governor has made addressing prescription drug pricing – one of the largest drivers of rising health care costs – a top priority for the Administration. Moments after being sworn in, the Governor signed an executive order to foster the creation of the nation's biggest single-purchaser system for prescription drugs, which will ultimately allow all Californians and private employers to sit together at the bargaining table across from big drug companies when negotiating prescription drug prices. Last year, the Governor signed legislation prohibiting pay-for-delay agreements between brand name and generic drug manufacturers by making them presumptively anticompetitive. These anticompetitive deals hurt consumers and increase drug company profits by blocking the development of generic drug competition.

About DMHC:

The DMHC protects the health care rights of more than 26 million Californians and ensures a stable health care delivery system. The DMHC Help Center has assisted approximately 2.4 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.