In this episode, we are joined by Steven Lucio, Associate Vice President of Pharmacy Services at Vizient, to discuss Vizient’s Drug Price Forecast and the estimated increase in the price of pharmaceuticals in 2019.
Highlights of this episode include:
- Background on Vizient’s Drug Price Forecast and why it is a valuable resource for heath system leaders
- Insight into the predicted 4.92% drug price increase for 2019
- Positive developments and ongoing challenges related to drug pricing
- Advice for healthcare providers as it relates to managing their pharmacy spend in 2019
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.
Twice a year, Vizient conducts a pricing analysis to provide insight on factors driving pricing and practice changes in the pharmaceutical industry. To talk with us about this latest analysis, I’m joined by Steven Lucio who is their Associate Vice President of Pharmacy Services.
Steven is responsible for providing education to member organization and supporting their efforts on various clinical practice topics including improving medication safety, mitigating the impact of drug shortages, benchmarking pharmacy cost for key drug classes, evaluating the expense of high cost biologics, and preparing for the future development of biosimilar medications.
This past June, Steven published a book entitled Biosimilars and Biologics: Implementation and Monitoring in a Healthcare Setting. Steven is an expert in the area of biosimilars and is on a mission to help the medical community understand and embrace biosimilar drugs which have the potential to save the US healthcare system billions without compromising the quality of patient care.
Steven, welcome to the podcast.
Steven Lucio: Thank you very much. It’s great to be here.
Mike: So, let’s get started. First, could you briefly explain what Vizient’s drug price forecast is and what it measures?
Steven: Absolutely! The Vizient Drug Price Forecast is a detailed analysis and projection of anticipated trends in pharmaceutical pricing based upon the purchasing patterns of our member organizations.
Our membership includes a wide array of healthcare providers including many leading academic medical centers, pediatric facilities, community hospitals, integrated health system networks, and non-acute practice settings. As a result, we’re able to assess the diverse landscape of pharmaceutical products that contribute the most to total drug spend.
Vizient publishes the forecast twice a year in January and July. That way, members have access to relevant information regardless of whether they are on a budget that is fiscally aligned or related to a calendar year.
We project changes for a period of 6 to 18 months from the date of publication. Therefore, the forecast we just published in July anticipates pricing behavior for 2019.
We provided this tool for almost 20 years. And the continued interest in this resource really highlights just how important understanding and anticipating changes in drug prices is for all healthcare providers.
Mike: Thanks for that context, Steven. So let’s talk about the report. In it, you predicted that there will be an increase in drug prices in 2019, but maybe not quite as steep as what we’ve seen in previous years. Can you talk to us about that?
Steven: Yes. With our July ’18 forecast, we predict overall a 4.92% price increase for 2019. Now, on a positive note, this number is the lowest projection we’ve made since the July of 2014 when the rate of expense of many specialty pharmaceuticals truly started to impact the market.
Conversely, however, even the 5% increase in price is quite substantial. For example, we have many large members that easily spend $50 million a year on their drug budgets. And so, as a result, their expenses, even at 4.92% increase could grow as much as $2.5 million.
Also, it’s important to remember that we are only projecting changes relating to price. People have to realize that there are other influences to the cost of pharmaceuticals including the length which medicines are used. So, even just using more of the same product will increase your expense. And then, obviously, the cost of your more expensive drugs that continue to be improved also contributes.
So, pricing is very important. And it’s something that we monitor very closely and try and influence as much as we can. But it is one piece of the puzzle.
Mike: And there are some factors both driving and restraining prices, as you suggested, in 2019. So first, let’s go through the positive developments.
Steven: Yeah, absolutely. The positive developments are several fold. First, the moderation in our projections, to some extent, reflects the increased scrutiny of excessive price increases. Definitely, there’s a much greater awareness beyond just the healthcare community as to how expensive medications have been.
In addition, the impact of generics, and now biosimilar, drugs have also contributed to that moderation.
So, while we are seeing fewer in number, we are finally starting to see medications coming to market as generic competitors for some of the most expensive medications that we have confronted in several years. And that has resulted in price decreases.
Also, the process of biosimilar introduction is finally starting to take place within the realm of biologics. And as we go into 2019, we expect to see more of these competitive products called biosimilars come into market to really combat some of the high cost medications that are used in very specialized patient populations and that really contribute the most to spend for our members.
Another element that has also contributed to these changes has been the moderation especially around the area that’s usually category as specialty pharmaceuticals. One example is within the hepatitis C market. Many people can probably hearken back to 2015 and 2016 when a whole new category of medications for hepatitis C were being introduced. And the great thing is that these novel agents were providing cure rates 95% for hepatitis C patients.
Now, that was wonderful in terms of treating this large population of patients. But it caused our overall trend in pricing and cost to go up in double digit percentages—which was very challenging.
Now, the great thing is that many patients who were waiting on these agents had been successfully treated. Also, there’s been a lot of innovation in this area. So there are many therapeutic alternatives that can be used. And so, as a result, the curve has started to bend downwards. And so, we’re not seeing the dramatic increases that we had. In fact, we’re projecting no pricing growth in 2019 for this class.
Mike: Thanks, Steven. And as we noted, there’s also some ongoing challenges related to drug prices. Could you go through those for us?
Steven: Yes. In spite of the fact that we have strategies that are helping us manage prices, we still see increases particularly around the new drugs that continue to enter the market at very excessive cost.
For example, a lot of this centers around the oncology area. Some of the most recent treatments that many of your listeners are likely dealing with that right now are therapies that are designed to increase the patient’s owned immune system in fighting their cancers. These treatments are truly revolutionary. They’re driving tremendous outcomes for some patients where few, if any, treatment options previously existed
But these medications frequently come with a very high price tag; in some cases, $400,000 a year or even higher.
Also, we are now entering the realm of genetic therapy, gene therapies. In fact, the first true gene therapy product was recently approved for a rare form of blindness. This drug, if a patient needs to be treated in both eyes, accounts for a spend or a cost of about $875,000.
So yes, the rate of growth overall has moderated. But we’re still struggling with how do we maintain accessibility to medications in the long-term. And given the pipeline of agents that we expect to be approved and the areas that are being researched, we really do not expect this trend to go away any time soon.
Mike: Steven, what advice do you have for healthcare providers as it relates to managing their pharmacy spend going into 2019.
Steven: First, it’s the understanding that there’s no magic bullet to curtailing the growth and drug expenditures, absolutely. Managing increasing prices is going to continue to be a challenge for healthcare providers. So, from a strategic standpoint, the healthcare industry must continue to adopt methodologies that measure the value of medications depending upon the outcome that these interventions drive.
Frequently, you’ve heard this called value-based purchasing or outcomes-based payments or contracts. The cost of drugs ultimately must be tied to what they do, not just what the market will bear.
And so, there are many organizations, payers and providers, that are currently trying to establish mechanisms that measure the value of outcomes.
But a lot of work remains. Still, any provider should be thinking about ways that they can increase the collection of data as it comes to outcomes to truly understand what these medications do.
Now, as I alluded to earlier, there are also some very specific areas where we can take action. One of those that we continue to advocate for is then the continued consideration of biosimilars. So, like generics, the predecessors of biosimilars, we are still in the formative stages of this market. And it’s taken some time for this group to form. But as we go into 2019, we really expect some substantial biosimilar competition especially in the realm of oncology practice.
And this is critically important because most account suggest that just the oncology drug landscape accounts for about 20% of spend across the healthcare enterprise. And so we have to see greater acceptance of these agents and greater use by physicians, greater adoption by payers if we’re going to have a substantial impact and influence the overall cost of oncology pharmaceuticals.
And then, something that we would really stress is watching closely for regulatory changes. As I mentioned previously, there is much greater scrutiny by everyone including the government regarding the pricing of pharmaceuticals. And we’ve already seen more actions by the Food & Drug Administration and by Medicare and Medicaid. It’s hard to predict exactly what subsequent intervention is going to look like, but we do expect change to be introduced.
And so, providers need to be vigilant that a change is being introduced. Even more importantly, when initially proposed because that gives you opportunities to take advocacy action if possible and make sure that your voices are heard.
Vizient has been working with member organizations to increase the extent to which we advocate for changes that address these challenges that we see in the market, particularly around the issues like the high cost of pharmaceuticals.
Mike: If you’d like to get a copy of this most recent drug price forecast, you can go to Vizientinc.com. Steven Lucio, thanks so much for stopping by the Hospital Finance Podcast.
Steven: Thank you very much.