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Drug Costs Rise Less Quickly, Study Finds

Increased use of generic drugs cuts costs without health risks

April 21, 2009

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It may come as a surprise but a new report finds prescription drug cost trends decreased to record lows last year. Data from pharmacy benefit manager Express Scripts indicated that the trend resulted from greater use of generic drugs and low-cost branded drugs. The overall pharmacy cost trend for clients of the company was 3% for 2008, down from 5.5% the year before.

To put that in simpler English, costs of prescription drugs continued to rise, only not as quickly as in the previous year.

The company calculated the data by evaluating total prescription costs for traditional and specialty drugs, including patient copays and payments by plan sponsors such as health plans and employers.

"Using generic drugs that are safe and effective can help lower costs while still driving value for patients and employers," said Steven Miller, M.D., senior vice president and chief medical officer at Express Scripts. "Although the trend is the lowest it has been in over a decade, significant opportunity to lower spending still exists."

The research shows that failure to make prescription drug choices that take full advantage of clinically appropriate, lower-cost alternatives to more expensive brand drugs cost Americans approximately $42 billion in 2008. This estimate is based upon potential savings for the total U.S. population in only 13 drug-therapy classes.

Researchers calculated the $42 billion estimate by using a commercially insured group of 3,000,000 people to extrapolate savings for the U.S. commercially insured population. These figures were then applied to others insured by payers such as Medicare and Medicaid in proportion to the total insured population and the number of prescriptions.

"Finding ways to reduce spending without compromising health outcomes is the top priority for healthcare reform, as the Obama administration recognizes," said Alan Garber, M.D., Ph.D., Henry J. Kaiser Professor and director of the Center for Health Policy at Stanford University. "We have long used financial incentives to try to eliminate waste. Now we're finding that tools that build upon the insights of behavioral economics and psychology can have powerful, positive effects."

Savings opportunities

On average, a generic drug is over $90 cheaper than a brand name drug. Express Scripts data indicates that generic drug usage from 2007 to 2008 increased by 7.5 percent, while utilization of brand name medications decreased 11 percent.

By the end of 2008, 67.3 percent of all prescriptions that Express Scripts filled were for generic drugs. In comparison, the national average for generics drugs was 63.7 percent for the 12 months ending September 2008, according to IMS Health.

Options to save more by using generics will continue to expand going forward. In 2009, at least 20 branded drugs are expected to become available generically. Over the next five years, more than $66 billion worth of branded drugs are expected to lose patent exclusivity.

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