Report: Pharma spend helps push medical costs up

Dive Brief:

  • Pharmacy costs are poised to rise 20% in 2018 and contribute to an overall increase in healthcare spend, according to a new report from PwC's Health Research Institute (HRI) .
  • "Medical cost trend: Behind the numbers 2018" projects 6.5% growth in medical costs next year, driven largely by three factors: rising general inflation, high-deductible insurance losing their luster to employers, and fewer branded products losing exclusivity, meaning a lack of opportunities for lower-cost generics to enter the market.
  • Conversely, greater pressure from lawmakers and U.S. consumers as well as more tailored employee healthcare plans may help mitigate the expected cost surge.

Dive Insight:

HRI's newest findings reaffirm other recent reports detailing the factors that will affect drug spend, at least in the near term.

QuintilesIMS, for example, last month anticipated that payer and consumer pushback on sky-high treatment prices would likely force down drug costs over the next five years. Another study from the life sciences services provider published in December expected biosimilars — the copycat versions to biologics drugs — to keep drug spend lower, though that would be offset but increasing costs related to specialty medications.

According to the HRI report, pharmacy spend will make up just 18% of total medical costs in 2018 versus other segments of the healthcare industry such as inpatient care and physician services, which comprise 30% and 29% of costs, respectively. And yet, pharmacy spend has grown in some capacities at a much faster clip than those other segments.

Image courtesy of Health Research Institute

That trend will continue next year in good part because consumers won't be able to rely on a medley of generic medications — long lauded by pharmacy benefit managers, physicians and patients for their lower price tags — becoming available.

Inflation, meanwhile, should also have a large affect on upping drug spend.

"One of the reasons that the health system in general is so sensitive to general economic inflation is it's a labor-intensive industry," Ben Isgur, leader of HRI, told BioPharma Dive. "So whether it is delivering care in a hospital or clinic, or it is developing new treatments, drugs, devices, what have you, there's a lot of people involved, and so when general inflation goes up it can affect wages. Wages start going up, and then of course that eventually moves into the medical system and helps inflate costs there."

Regardless of what's causing the growth, medical costs have increased between 6% and 7% annually since 2014, according to HRI. While that may not seem like a lot, spending on different line items such as healthcare premiums have "outpaced the economy" and made it difficult for consumers to keep up, according to the report.

"This gap erodes consumers’ ability to pay for other goods and services, including housing, food and transportation," the report said. "Nationally, as medical costs are projected to continue to grow faster than gross domestic product (GDP), healthcare will continue to take up a greater share of the economy. This could lead to larger budget deficits or less spending in areas such as education, infrastructure and defense. Even the 'new normal' is not sustainable."

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