Two months into COVID-19, and generic drug prices remain in check
On June 17, CMS published its latest update to the National Average Drug Acquisition Cost (NADAC) database. For the uninitiated, NADAC is the best national public database of surveyed pharmacy invoice costs to acquire prescription drugs (which is not hard, because it’s also the only one). In other words, if you are looking to understand what pharmacies are paying to purchase drugs from their wholesalers each month (before rebates), and you don’t want to cough up a boat load of money to pay for it, NADAC is where you must go.
As we’ve discussed at length in recent months, NADAC is lagged by roughly two months. So the survey prices we just received last week reflect pharmacy invoice costs from April. Recall that April was the second month (and first full month) that the drug supply chain was in the throes of its battle with COVID-19-related disruptions. Many drugs have gone into shortage since then, some for legitimate reasons, and others for some real head-scratchers. As a result, many Americans have been fearful that the disruption and strains on the supply chain could drive prescription drug prices higher.
Source: West Health and Gallup, May 2020
But underneath all of this fear and supply chain drama, there is very good news – the data shows that aggregate generic drug inflation is essentially nowhere to be found. Based on Medicaid’s drug utilization mix, the weighted impact of this month’s price changes was a minuscule $2 million. That’s pretty much a rounding error, considering the $900 million per month that state Medicaid programs spend in total on generic drugs.
So, all told, generic drug pricing is continuing to weather the pandemic storm. The remainder of this report digs a bit deeper to see if there are any warning signs underneath the relative calm on on the surface.
1. Unweighted drug price changes improve month-over-month
Each month, we first look at how many generic drugs went up and down in the latest month’s survey of retail pharmacy acquisition costs, and compare that to the prior month. As shown in Figure 1, the June NADAC survey results yielded fewer generic drugs that increased in price than those that decreased in price.
Basically, the quick way to read the chart below is to look for blue bars that are taller than orange bars to the left of the dotted line, and exactly the opposite to the right of the dotted line. That would indicate a good month – more generic drugs going down in price compared to the prior month, and less drug prices going up.
Figure 1
Source: Data.Medicaid.gov, 46brooklyn Research
That’s exactly what happened this month. In June, the number of generic drugs that experienced price decrease went up by 15% month-over-month. Meanwhile, the number of generic drugs that experienced price increases went down by 16% month-over-month. Put it all together, and for every generic drug that decreased in price in June, 0.88 increased in price, down from a ratio of 1.21 in May.
2. Weighted Medicaid generic inflation nets out to $2 million
As we’ve written in prior updates, knowing the price changes alone are not enough. We need to apply utilization (drug mix) to the price changes, which is the purpose of the NADAC Change Packed Bubble Chart (Figure 2). We use Medicaid’s Q4 2018 through Q3 2019 drug mix to arrive at an estimate of the total dollar impact of the latest NADAC pricing update. This helps quantify the real impact of those price changes from a payer’s perspective.
The green bubbles on the right of the Bubble Chart viz (screenshot below in Figure 2) are the generic drugs that experienced a price decline in the latest survey, while the yellow/orange/red bubbles on the left are those drugs that experienced a price increase. The size of each bubble represents the dollar impact of the drug on state Medicaid programs, based on utilization of the drug in the most recent trailing 12-month period. Stated differently, we simply multiply the latest survey price changes by aggregate drug utilization in Medicaid over the past year, add up all the bubbles, and get the total inflation/deflation impact of the survey changes.
Figure 2
Source: Data.Medicaid.gov, 46brooklyn Research
Lots of moving parts for sure, but it all nets out to only $2 million of net inflation using Medicaid’s drug utilization. For a nation concerned that drug manufacturers would take advantage of the pandemic and jack up their prices, the early data suggests that in the aggregate, generic manufacturers at least are exercising restraint.
3. Year-over-year generic deflation climbs back into the double-digits
Looking at generic deflation over a longer time horizon only makes it look better. Ever since last June, we have been tracking year-over-year generic deflation for all generic drugs that have a NADAC. We once again weight all price changes using Medicaid’s utilization data. Over the past year, we have been seeing a gradual compression in deflation. But oddly enough, this trend has actually reversed these past two months – sending this month’s deflation on generic oral solids and all generics to 10.9% and 8.1%, respectively (Figure 3).
Figure 3
Source: Data.Medicaid.gov, 46brooklyn Research
4. ADPIT paints a cautiously optimistic picture
There is one last pit stop on our NADAC generic drug pricing Tour de Data, and that’s our Abnormal Drug Pricing Increase Tracker (ADPIT). As a reminder, ADPIT takes all of the NADAC prices for one drug over any given 52-week period, ranks them, finds the 90th percentile for the price, and then compares the current price to that 90th percentile price. If the current price is above the 90th percentile, we consider the current week’s price to be “abnormal” and add it to the list for you to peruse. Then we do this for another 20,000 or so drugs for good measure to complete the list, shown in Figure 4.
If this is the first time you are seeing this, we include the number of annual Medicaid prescriptions for each of these abnormally priced drugs, and then two metrics we created – one called Relative Impact Ratio (RIR) and another called Relative Impact Score (RIS). RIR simply tells you how far above the 90th percentile a drug’s price currently is (i.e. Lisinopril 20 MG MG Tablet at 1.09 means its 9% above its T-52 week 90th percentile price). RIS multiplies the number of annual Medicaid prescriptions by (RIR - 1) to size the impact of the “pricing abnormality” (for Metformin, 9% x 3,110,285 prescriptions = 270,412). Add up all the RIS for all of the drugs each week, take the four-week moving average, and you get the chart in bottom right of Figure 4 (which sizes the aggregate weighted impact each week). We then divide the bottom right chart into drugs with active ingredients in ongoing COVID-19 clinical trials, and all other drugs. Check out our interactive ADPIT tool here, and find more information on how to use it here and here.
Figure 4
Source: Data.Medicaid.gov, ClinicalTrials.gov, 46brooklyn Research
OK, now that we’ve reviewed the nerdy stuff, the key call out here is the chart on the bottom right of Figure 4. Notice the latest bar continued to rise, but it’s still quite low compared to where it was back in March (which given the two month lag in data, reflected pre-COVID prices), meaning that we are still seeing numbers in the realm of normal. The other positive takeaway from that same chart is the orange section of the bar – which represents the total RIS for all drugs undergoing clinical trials for COVID-19 – is as low as it has been in more than a year. This tells us that, at least in the aggregate, all of the trials on COVID-19 drugs (or secondary effects, like hoarding) are not leading to meaningful price increases on these drugs.
5. Generic Suboxone Sublingual 8-2mg Tablets decrease ~15% per dose
Buprenorphine-naloxone (generic Suboxone) is a medication used in the treatment of opioid addiction, and a medication we have previously discussed in regards to price increases for the 8-2mg tablets. In the past, we have discussed the challenges such price increases pose to state Medicaid programs looking to control costs related to treating opioid addiction, especially given the high rates of utilization of the drug.
Generic Suboxone comes in two dosage forms, tablets and sublingual films. This month, the cost for the 8-2mg strength of the original tablet form decreased $0.26 per film (or 14.9%), and now stands at just $1.49 a dose. This decrease of just over a quarter per dose results in nearly $11.4 million in annualized savings for Medicaid programs … that is, if all programs had the foresight to use a cost-plus model, which isn’t the case in most Medicaid managed care programs.
But the lack of cost-plus models in managed care is not the only problem when it comes to Suboxone. As we mentioned, in addition to the tablet, there is also a film version, which was introduced into the market back in 2010 by drugmaker Reckitt Benckiser Group (now Indivior) right as their exclusivity on the tablet ran out (an alleged textbook case of “product hopping”). As Reckitt/Indivior deployed a number of strategies that staved off competition, fast forward to 2019, and by then the generic version of the film has somehow carved out a 17% share of the generic Suboxone Medicaid market, despite it carrying a NADAC of $4.74 per dose, more than 3x the cheaper tablet version (as can be seen on our NADAC Drug Pricing Dashboard, or below in Figure 5). If Medicaid could wave a magic wand and convert all of these generic films to tablets, we estimate, it could save nearly $64 million per year (based on extrapolation of 2019 Q1 to 2019 Q3 Medicaid utilization) in NADAC ingredient costs.
Figure 5
Source: Data.Medicaid.gov
Figure 6
Source: Data.Medicaid.gov; 46brooklyn Research
As bad as the fallout from Reckitt/Indivior’s tactics were, if you weren’t already frustrated by this little generic Suboxone vignette enough, consider this. Utilization of brand-name Suboxone films dwarfs all forms of the generic in Medicaid. As shown in Figure 6, the $8.62 per dose brand film has 61% market share (5.89 million prescriptions) of the Suboxone Medicaid market, based on 2019 Medicaid utilization data reported by CMS. Meanwhile, Medicaid reported just 3.81 million prescriptions over the same period for both generics combined.
But don’t feel bad for the state Medicaid programs just yet. They aren’t paying anywhere near $8.62 per dose for brand-name Suboxone. Between significant statutory rebates – which have ballooned on this drug due to the inflationary penalty as its price has risen over the years – and additional supplemental rebates (which based on channel checks, are seriously large for Suboxone films), we wouldn’t be surprised if the brand film’s net cost was more in line with the cost of one of the generics. So, in this case, our states may actually be choosing the lowest net cost version, thanks to all of those rebates. This is great news for our states, who are facing massive, COVID-19-driven budget crises. Just tap into that Medicaid drug rebate slush fund and everything will be just fine!
Sarcasm aside, hopefully you see our point. Generic markets for critical drugs are not developing as rapidly as they should be because of programs like the Medicaid Drug Rebate Program. PBMs and health plans get well-deserved blame for their roles in driving manufacturers to raise their prices, but they are not alone in inflating the gross-to-net bubble: state governments also are addicted to the sweet nectar of manufacturer kickbacks.
To be clear, this drug rebate program saves all sorts of money for Medicaid and taxpayers, but where there are winners, there are also losers. These massive discounts that state governments get are not extended to smaller private payers, and play an obvious role in inflating drug costs for others. They also create an extended market for brands that should have, by design, been dead and gone long ago. Instead, all the drug manufacturer has to do to maintain their market presence is back a dump truck up to a state capitol and drop off loads of rebate dollars. Meanwhile, other non-Medicaid payers are left to cope with a less competitive (and more costly) generic marketplace whose growth has been stunted, in part, by the Medicaid rebate machine.
6. Generic Zytiga decreases ~60% per dose
Abiraterone (generic Zytiga) is a medication used to treat prostate cancer. Generic NADAC prices for this drug began hitting the survey results in February 2020 and has already reduced the price to below $5 per dose (compared to the brand, which carried a pre-rebate price of $87.65 per dose in January 2020) as can be seen in Figure 7.
Figure 7
Source: Data.Medicaid.gov
7. Tacrolimus prices continue their gradual ascent
While this month saw some notable drugs deflating, we did find an increase worth highlighting. One of the drugs that we have spent a larger share of our time studying over the last couple years is tacrolimus (generic Prograf). Initially, our interest in the drug stemmed from data showing many state Medicaid managed care programs getting taken to the cleaners over high mark-ups on the medication. But as of late, our interest has centered on some pricing volatility that has begun pushing prices north.
Specifically, we highlighted some impactful price changes in October, November, and December of 2019. Most recently in April 2020, we noted some price increases that coincided closely with launches of studies of the drug as a potential treatment for COVID-19.
This month’s survey results continued the ongoing trend of price increases on the two most popular strengths of tacrolimus capsules (1mg and 0.5mg strengths). As can be seen in Figure 8, these recent changes have elevated the prices to levels that haven’t been seen since 2015.
Figure 8
Source: Data.Medicaid.gov
Thanks to Joe Burns at Managed Healthcare Executive for speaking with 46brooklyn’s Antonio Ciaccia about how PBMs are evolving their business models and adapting to increasing scrutiny on their pricing practices.
Additional thanks to Colleen Becker at the National Conference of State Legislatures (NCSL) for referencing our initial drug pricing observations at the onset of the COVID-19 pandemic that stressed that it was too early to gauge how the supply chain would hold up amidst pandemic pressures. As the above data in this report suggests, it appears that at least from a pricing perspective, that the drug supply chain has weathered the storm and delivered business as usual.
Lastly, kudos to Bob Herman Axios for putting our dashboards to work for his piece looking at dexamethasone optimism.