The California Department of Managed Health Care (DMHC) released the Prescription Drug Cost Transparency Report for Measurement Year 2018. The report looks at the impact of the cost of prescription drugs on health plan premiums and compares this data from the first two reporting years of 2017 and 2018. Among other findings, the report reveals that increases in prescription drug costs significantly outpaced increases in overall medical expenses in California.
“Prescription drug costs are a major contributor to the overall cost and affordability of health care,” said DMHC Director Shelley Rouillard. “Health plans paid more than $400 million more on prescription drugs in 2018 than they did in 2017. This rate of increase outpaces the increase in overall medical expenses, impacting the affordability of health care. This report provides greater transparency into prescription drug costs so the public can better understand the impact to health care premiums over time.”
The DMHC considered the total volume of prescription drugs covered by health plans and the total cost paid by health plans for those drugs. Additionally, the Department analyzed how the 25 most frequently prescribed drugs, the 25 most costly drugs, and the 25 drugs with the highest year-over-year increase in total annual spending impacted health plan premiums.
The report’s key findings include:
- Health plans paid nearly $9.1 billion for prescription drugs in 2018, an increase of more than $400 million from 2017.
- Prescription drugs accounted for 12.7 percent of total health plan premiums in 2018.
- Health plans’ prescription drug costs increased by 4.7 percent in 2018, whereas medical expenses increased by 2.7 percent.
- Overall, total health plan premiums increased 6.2 percent from 2017 to 2018.
- Manufacturer drug rebates totaled approximately $1.058 billion, up from $922 million in 2017. This represents about 11.7 percent of the $9.1 billion spent on prescription drugs in 2018.
- While specialty drugs accounted for only 1.6 percent of all prescription drugs dispensed, they accounted for 52.6 percent of total annual spending on prescription drugs.
- Generic drugs accounted for 87.0 percent of all prescribed drugs but only 22.4 percent of the total annual spending on prescription drugs.
Senate Bill 17 (Hernandez, 2017) requires health plans in the commercial market to annually report their prescription drug costs to the DMHC. The Department must prepare an annual report summarizing the findings and the impact of prescription drug costs on health care premiums. The DMHC’s first Prescription Drug Cost Transparency Report, for Measurement Year 2017, was issued in December 2018.
In his budget, which will be released later, Governor Gavin Newsom will release a suite of proposals aimed at driving down the cost of prescription drugs, including:
California will be the first state to create its own generic drug label and make our generic prescription drugs available for sale to all Californians: The Administration will negotiate partnerships to establish the state’s own generic drug label. The state would contract with one or more generic drug manufacturers to manufacture select generic drugs on behalf of the state and participating entities. This proposal will increase competition in the generic market, resulting in lower generic drug prices for all purchasers.
- Golden State Drug Pricing Schedule: The Administration will propose to establish a single market for drug pricing within the state. This proposal would enable all purchasers—Medi-Cal, California Public Employees’ Retirement System, Covered California, private insurers, self-insured employers, and others—to combine their purchasing power. Drug manufacturers would have to bid to sell their drugs—at a uniform price—in the California market. California would invoke a most-favored-nation clause in the manufacturer price bid, which would require manufacturers to offer prices at or below the price offered to any other state, nation, or global purchaser if they wish to sell their products in California.
- Medi-Cal Best Price: Current law authorizes the Department of Health Care Services to negotiate state supplemental rebates based, in part, on the best prices that manufacturers provide to other purchasers within the United States. The Budget proposes to expand the Department’s authority to consider the best prices offered by manufacturers internationally when conducting negotiations for state supplemental rebates.
- Rebates for Non-Medi-Cal Purchases: The Budget proposes to leverage the purchasing power of the Medi-Cal program to negotiate supplemental rebates on behalf of target populations outside the Medi-Cal program.
This article was released by the California Department of Managed Health Care.