WASHINGTON — Spending on prescription drugs is expected to increase at an accelerating rate over the next 10 years, according to government estimates released Wednesday — ramping up to as much as 6.1 percent growth by 2020.
The Office of the Actuary at the Centers for Medicare and Medicaid Services annually forecasts how much money patients, insurance companies, and the government will spend on health care in the coming decade — so-called national health expenditures. Broadly, they predict total health spending in the U.S. will increase by an annual average of 5.5 percent until 2027.
As part of that, prescription drug spending — which only includes spending on drugs dispensed at a pharmacy, not drugs administered in a hospital or clinic — is expected to have grown 3.3 percent in 2018, and is expected to grow 4.6 percent in 2019, and then, on average, 6.1 percent a year through 2027. CMS is expected to release its report on actual 2018 expenditures later this year.
The predictions come as politicians in both parties ramp up their rhetoric about the high price of prescription medicines. The government’s actuaries attribute the increases to a variety of factors, such as the approval of even more new drugs, higher prices, an aging population, and insurers making it easier for patients to get the drugs they need for chronic diseases.
The estimates don’t take into account any of the Trump administration’s proposals to lower the price of prescription drugs, like its plan to tie U.S. drug prices to prices in other countries, or to eliminate the rebates drug manufacturers pay pharmacy benefit managers.
Sean Keehan, an economist with the National Health Statistics Group at CMS, also said that the numbers might diverge from what happens in reality because there are so many variables when it comes to the pharmaceutical sector.
“With the drug sector, that’s the sector that’s most difficult to project, because if a new drug comes on the market that was unexpected, or a drug gets pulled because of safety reasons, there’s a lot of volatility that is difficult to project even one or two years out,” Keehan said.
Indeed, a 2018 CMS “accuracy analysis” says that, in the past, the estimates for drug price growth have been off by between 5 and 10 percentage points, and that actual spending has, on average, come in below the estimated levels.
The projections for prescription drug spending also rely on an arcane government statistic — the consumer price index for prescription drugs — that some experts have critiqued.
Ernst Berndt, an emeritus professor of applied economics at the Massachusetts Institute of Technology, who has studied the measure, said it is throwing off the estimates. He told STAT the CPI for drugs tends to be an overestimate because of the way it is collected.
The CPI for drugs is a measurement of the change in how much money pharmacies get paid when they fill prescriptions. But the government doesn’t have access to all of that data, so it has to make certain assumptions. That casts doubt on the accuracy of its result, Berndt said.
The Bureau of Labor Statistics, which calculates the index, assumes that when a pharmacy fills a prescription, it’s paid back by the patient and insurer at the “wholesale acquisition cost,” commonly referred to as the list price, Berndt said. That’s true for brand drugs — but not for generics. For generics, pharmacies get a smaller payment. But when calculating the CPI for drugs, BLS assumes that they get the larger WAC price.
So the CPI for drugs is higher than it really should be — and that pushes up the estimate of national health expenditures.
“That ends up manifesting itself in projections that have tended, historically, over the last decade, to sort of overproject expenditures at the retail level for pharmaceutical products,” Berndt said.