Third drug pricing report analyzes rising costs of diabetes, asthma medication

Nearly one in five diabetes drugs and one in 20 asthma drugs experienced a significant price increase in the past year or two, with average one-year increases of about 11.2 percent and 19.3 percent, respectively, according to the third annual drug pricing report released by the Nevada Department of Health and Human Services last week.

The state identified 117 essential diabetes drugs and 13 essential asthma medications that had a significant price increase over the previous one or two years, meaning that their costs increased by more than the rate of medical inflation. Manufacturers attributed the price increases to a number of factors, including changes in marketplace dynamics, research and development and manufacturing cost.

In general, the findings of the report continued to be consistent with the results of the first two diabetes drug pricing reports released last year. The state has been required to produce the reports annually on essential diabetes drugs since the 2017 legislative session, and essential asthma drugs were brought into the fold during the 2019 session.

In addition to analyzing manufacturer data, the report also looked at the role of pharmacy benefit managers (PBM), the middlemen in the drug pricing process that serve as a go-between for insurance companies, pharmacies and drug companies, in the rising costs of essential diabetes and asthma drugs.

Here are some of the key findings of the report:

Drug manufacturer costs and profits

The average profit for essential diabetes drugs was $16.4 million, while the average profit for essential asthma drugs was $29.2 million. However, as was the case in previous drug pricing reports, the state identified wide variation in the profitability of these drugs, with a large standard deviation.

“The inflated average compared to the median was due to a subset of reports from large pharmaceutical companies that produced drugs with very high production and administrative costs and profits or smaller pharmaceutical companies that are reporting zero for these costs,” the report notes.

The report found that manufacturers of essential diabetes drugs spend $15.2 million on average producing the drug and $20.2 million on average on administrative expenditures related to the drug. For asthma drugs, those numbers were $10.6 million and $20.4 million, respectively. (The report does, however, note that some manufacturers reported $0 for total administrative expenditures, likely including those costs in the total cost of producing the drug.)

Financial assistance and rebates

Manufacturers of essential diabetes and asthma drugs reported providing an average of $22.6 million in financial assistance to patients, though the report notes that the value was inflated by a subset of large drug manufacturers that provided high values of financial assistance.

The report also found that the average rebate provided by manufacturers to PBMs was $6.4 million.

Price increase justification

The top three reasons drug manufacturers gave to justify their price increases were changes in marketplace dynamics (22 percent), research and development (22 percent) and manufacturing cost (13 percent). Other top reasons included supporting regulatory and safety commitments (9 percent), increase in the rate of inflation (7 percent) and rebates (7 percent).

Four percent of the justifications were attributed to generating profit.

PBM profits

PBMs negotiated $138.3 million in rebates with manufacturers of essential diabetes and asthma drugs in 2019. Almost all of that, $119.2 million, or 92 percent, was negotiated to cover people in private insurance plans. More than $1.6 million, about 1 percent of the total, was negotiated to cover the purchase of drugs for use by Medicaid recipients. The rest went toward individuals covered by other non-Medicaid and non-Medicare government health plans.

Of those rebates, PBMs retained nearly $8 million total, while half of the PBMs reported that they retained none of the rebates.

Sales representatives

In total, pharmaceutical sales representatives compensated health professionals to the tune of more than $1 million last year, with an average compensation of about $14.61. The report concluded that “the predominant pharmaceutical representative interactions with health providers, health support staff, and administration involved small value compensation transactions.”

Almost all of the compensation, $923,000, was in the form of food and beverage, with an average of $16.68.

Medicaid spending on diabetes drugs

The report found that essential diabetes and asthma drugs were responsible for 11.3 percent of Medicaid claims in 2019 and 17.7 percent of overall Medicaid expenditures on prescription drugs. Diabetes drugs account for less than 5 percent of total utilization but more than 10 percent of Medicaid spending; asthma drugs had a more equal one to one ratio between utilization and spending.

The report also found that the average claim cost for brand name or generic diabetes drugs and generic asthma drugs have decreased while brand name asthma medications slightly increased.