Healthcare

Prescription Drug Trends

The price of prescription drugs is in the news and certainly in the political arena, but as usual politicians are taking the broad brush approach which can be misleading.

The cost of drugs is going up for three reasons: 🤑Utilization increase 🤑Price increase 🤑Growth of specialty drugs

For most drugs utilization is the main driver, but for specialty drugs the opposite is true. New specialty drugs are expensive, perhaps overly expensive, but a complete assessment (something alien to politicians) is not possible without considering the cost savings resulting from using these drugs… medical care, hospitalization, lost productivity, etc.

Keep in mind that trading price increases for greater utilization because of the greater affordability does not necessarily decrease overall spending and may have the opposite affect. 

 

Drug Trend Report (PMPY = per member per year)

Source: Drug Trend Report | Express Scripts

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2 replies »

  1. There is very little elasticity of demand for drugs. If you are sick, you will take the drug that will cure you regardless of the cost (even if you have to pay out of pocket). So your argument that “Keep in mind that trading price increases for greater utilization because of the greater affordability does not necessarily decrease overall spending and may have the opposite affect.” is flawed. The normal laws of economics do not apply to healthcare and sure don’t apply to drugs that are under patent protection and by definition have no replacement product.

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    • In general you are correct. However, when it comes to drugs people act differently. They go with generics, they split pills and they simply do not comply taking medication. All of which is changed if prices to them drop.

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