Six therapeutic categories account for most drug costs

Over the next three years, more than 85 percent of drug costs will be driven by six broad therapeutic categories, according to Medco’s Drug Trend Report. The PBM expects drug costs for plan sponsors to increase between 3 percent and 7 percent annually during the next three years.

The projection, interestingly, is based on the ingredient costs rather than the average wholesale price (AWP), which was used by Medco in past years. Ingredient cost is the AWP costs for the drug minus any brand or generic discounts (i.e., the maximum allowable cost for the generic drug) that the health plan receives.

The report says the reason for the switch is because “generic dispensing rates are at record levels and AWP may soon be replaced by another cost benchmark. Ingredient costs will more accurately reflect the impact from the large number of drug products expected to go generic in the next three years.”

It is expected that from 2009 to 2011, the cardiovascular and endocrine/diabetes categories will account for about 40 percent of the spending growth.

In 2008, diabetes medications were the leading driver of spending growth. Diabetes afflicts more people each year, and doctors increasingly prescribe multi-drug regimens involving newer, costlier drugs.

Projected drug spending increases, 2009-2011: 3%-7% per year

Cardiovascular 22%
Endocrine and diabetes 18%
CNS: neurology, mental health, and pain 14%
Musculoskeletal and rheumatology 14%
Oncology 9%
Respiratory 8%
Other categories 15%