Workers pack drugs at Optum RX, a pharmacy benefit manager for UnitedHealth, in Calsbad, Calif., March13, 2013. A 1 percent drop in drug spending was partly a sign of the rising use of generics, but experts warn that the high cost of specialty medicines could reverse the downturn. (J. Emilio Flores/The New York Times) ORG XMIT: MIN2013031820380695

J. Emilio Flores • The New York Times ,

Generics drive down drug spending, but will it last?

  • Article by: KATIE THOMAS
  • New York Times
  • March 18, 2013 - 9:30 PM

Spending on prescription drugs nationwide has been slowing for years because of the increasingly widespread use of low-cost generics. But in 2012, something unheard-of happened: Money spent on prescription drugs actually dropped.

The dip was small — 1 percent, to $325.7 billion — but it was the first time the research firm IMS Health recorded a decrease in U.S. drug sales since the company began tracking such numbers in 1957. And earlier this month, the pharmacy benefit manager Express Scripts reported that spending on commonly used pills — like those that treat high blood pressure and cholesterol — dropped by 1.5 percent, the first time that had happened since Express Scripts began following drug trends 20 years ago.

But even as the U.S. is in the midst of what has been called a “golden” period in spending on drugs, some are warning that the ever-expanding use of generics has masked a growing problem for the government, insurers and others who pay the bill for prescription drugs: the rising cost of complex specialty medicines that treat cancer, rheumatoid arthritis and other diseases.

How much longer?

“This is a charmed era that won’t last forever,” said Paul B. Ginsburg, president of the Center for Studying Health System Change, a nonpartisan research group that studies health care trends. “When you talk to benefits managers at large employers or insurers, the trend of specialty pharma is very, very prominent. You might even say they regard it as their biggest problem.”

The potential for higher spending on drugs comes amid a lively debate over the best way to contain the cost of health care, which many experts agree is a major threat to the country’s fiscal condition. Despite a recent slowdown in the growth of spending on overall health care, both Republicans and Democrats have warned that rising health costs will eventually overwhelm the federal budget and make basic health care unaffordable for many Americans.

Ginsburg and others said the forces that have been holding down drug costs are beginning to subside. Dozens of brand-name products, including widely used best sellers like the anti-cholesterol drug Lipitor, and Plavix, which prevents blood clots, have lost their patent protection in recent years, a phenomenon that has been called the “patent cliff.”

That cleared the way for cheap generic alternatives. But fewer major drugs are set to lose their patent protection over the next several years, and many of the newer drugs are so complex that it is still unclear how or when lower-cost copies will be brought to market once those patents expire.

High cost of specialty drugs

Specialty drugs are often injected or infused and many are so-called biologics, complex proteins that are made in living cells that treat a range of diseases, from various types of cancer to rare hereditary diseases.

Increasingly, they come with jaw-dropping price tags: Four drugs approved in 2012 carry a yearly cost of more than $200,000 per patient, according to Forbes.

The cost of some of these drugs can add up, even if only a handful of patients need them, said Judith P. Clark, pharmacy director of Mississippi’s Medicaid program. “I do know if we don’t do something quickly, our budgets are going to be blown out of the water,” Clark told a gathering of generic-pharmaceutical executives in February.

The high prices have also led to a wide disparity in out-of-pocket expenses paid by patients. Michael Kleinrock, director of research development at the IMS Institute for Healthcare Informatics, noted that while most drug-benefit plans ask for a small $10 co-payment for generic drugs, some patients who need specialty drugs can be required to pay more.

“For the vast majority of patients, their share of costs and their out-of-pockets for costs may go down,” he said. But “those few whose medicines are specialty and complicated — their share of costs may well go up.”

Fewer blockbuster drugs

Still, some have questioned how quickly prices will rise, arguing that the pharmaceutical industry is no longer bringing as many blockbuster drugs to market. “I don’t see any return to the glory days,” said David Cutler, a health economist at Harvard.

IMS Health has predicted that drug sales will rise by more than 4 percent in 2014, because of fewer brand-name drugs losing patent protection and also an influx of newly insured patients thanks to the federal health care law. Sales growth will then dip slightly to just more than 2 percent in 2015, another year in which several big drugs are expected to lose their patent protection, before rising faster again in 2016 to nearly 4 percent.

Several insurers and drug-benefit managers say they are already taking steps to try to rein in the cost of specialty drugs.

“I think they see the pain coming,” said Dr. Alan Lotvin, head of the specialty pharmacy at CVS Caremark, the pharmacy benefit manager.

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