Presentation by Tamara Hayford, Chief of CBO’s Health Policy Studies Unit, at the Association for Public Policy Analysis & Management 2021 Annual Research Meeting.

1. Presentation at the Association for Public Policy Analysis & Management
2021 Annual Research Meeting
March 28, 2022
Tamara Hayford
Health Analysis Division
The Contribution of Changes in
Drug Mix and Price Growth to the
Rising Costs of Brand-Name Drugs in
Medicare Part D
For information about the meeting, see www.appam.org/conference-events/fall-research-conference/the-power-of-inclusion/.

2. 1
The information presented here is preliminary and is being circulated to stimulate
discussion and critical comment.
This presentation has not been subject to CBO’s regular review and editing
process. The views expressed here should not be interpreted as CBO’s.
I am grateful to Yash Patel (formerly of CBO) and Joshua Varcie for research
assistance, and to Ru Ding for programming assistance.
For related work, see Congressional Budget Office, Prices for and Spending
on Specialty Drugs in Medicare Part D and Medicaid (March 2019),
www.cbo.gov/publication/54964.
Disclaimer and Acknowledgments

3. 2
1. Because data for 2019 are incomplete, the per-enrollee and per-user analysis ends in 2017.
Examine growth in net spending and average net prescription costs for brand-
name specialty drugs in Medicare Part D from 2015 to 2019 and compare it with
growth over the 2010‒2015 period.
Examine changes in net per-enrollee and per-user spending on brand-name
specialty drugs in Medicare Part D from 2010 to 2017.1
Study Objectives

4. 3
Brand-name specialty drugs accounted for an increasing share of net Part D
spending from 2010 to 2019.
Net price growth was slower over the 2015‒2019 period than over the
2010‒2015 period.
Net price growth was the primary driver of increased average costs of a
prescription for a brand-name specialty drug from 2015 to 2019. In contrast,
increased use of more-expensive drugs was the primary driver from 2010 to
2015.
Price growth for brand-name specialty drugs over the two analytical periods was
more closely aligned when drugs that treat Hepatitis C were excluded.
Overall, per capita and per-user spending on brand-name specialty drugs
continued to increase from 2015 to 2017, but at a slower rate than occurred over
the 2010‒2015 period.
Key Findings

5. 4
In the analysis of drug prices and spending in Medicare Part D, drugs were identified by National Drug Code (NDC). Red Book data are available from IBM Micromedex and include
list prices (such as the wholesale acquisition cost), as well as drug characteristics (such as the product name, manufacturer, dosage form, and strength) by NDC.
Medicare Part D: Beneficiary-level claims data for the entire Part D population
and confidential data on manufacturers’ rebates and other discounts by drug for
the 2010‒2019 period.
IQVIA (formerly IMS Health): List of specialty drugs on the market in 2015.
Red Book: Drug characteristics, including an active ingredient identifier and a
brand/generic identifier by National Drug Code.
Data

6. 5
1. IQVIA is a private company that provides data services and health care analysis.
CBO used a definition of specialty drugs that was developed by the IQVIA
Institute for Human Data Science.1
By that definition, a specialty drug treats a chronic, complex, or rare condition
and has at least four of the following seven characteristics:
▪ Costs at least $6,000 per year,
▪ Is initiated or maintained by a specialist,
▪ Is administered by a health care professional,
▪ Requires special handling in the supply chain,
▪ Is associated with a patient payment-assistance program,
▪ Is distributed through nontraditional channels (such as a specialty
pharmacy), or
▪ Requires monitoring or counseling.
We used those criteria to identify which new drugs (entering the market between
2016 and 2019) are specialty drugs.
Defining and Identifying Specialty Drugs

7. 6
1. Drugs are defined on the basis of product name, dosage form, route of administration, and strength.
Calculate net Part D spending, the number of standardized 30-day prescriptions,
and average net prices for all brand-name drugs.
Classify drug status along two dimensions: new/older and specialty/nonspecialty.
Merge data for different years at the drug level to analyze changes in prices and
composition of use.1
Decompose increases in average net prescription costs into contributions from:
▪ Price increases,
▪ Changes in the mix of drugs on the market at the beginning of the
analytical period, and
▪ The introduction of new drugs.
Calculate year-over-year price increases for the 2015‒2019 period and compare
with the 2010‒2015 period.
Methods

8. 7
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Net Per Capita Spending on Brand-Name Drugs in Medicare Part D
in 2010, 2015, and 2019
Net per capita spending on brand-name
specialty drugs continued to increase from
2015 to 2019, but at a slower rate.
Similarly, overall net spending on brand-
name specialty drugs increased from
$33.6 billion in 2015 to $46.8 billion in
2017. (Net spending was $9.4 billion in
2010.)
330
1,660
1,990
850
1,110
1,960
880
1,030
1,910
0
500
1,000
1,500
2,000
2,500
Specialty Nonspecialty Total
2010 2015 2019
2019 dollars

9. 8
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Share of Net Part D Spending and Standardized Prescriptions
Attributable to Brand-Name Specialty Drugs
12
0.48
30
0.42
37
0.44
0
5
10
15
20
25
30
35
40
Share of Net Spending on Brand-Name
Specialty Drugs
Share of Standardized Prescriptions for Brand-
Name Specialty Drugs
2010 2015 2019
Percent

10. 9
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
n.a. = not applicable.
a. Older drugs are those on the market at the beginning of each analytical period. b. New drugs are those that were introduced during an analytical period.
Average Net Cost of a Brand-Name Prescription for Specialty and
Nonspecialty Drugs Over the 2010‒2019 Period in Medicare Part D
2019 Dollars
2010‒2015 Period 2015‒2019 Period
Average Net
Price in 2010
Average Net
Price in 2015
Compound
Annual Growth
(%), 2010 to
2015
Average Net
Price in 2015
Average Net
Price in 2019
Compound
Annual Growth
(%), 2015 to
2019
Brand-Name Specialty Drugs
All drugs 1,400 3,820 22.3 3,820 4,260 2.7
Older drugsa 1,400 2,740 14.4 3,820 4,160 2.1
New drugsb n.a. 8,930 n.a. n.a. 5,000 n.a.
Brand-Name Nonspecialty Drugs
All drugs 139 176 4.5 176 179 0.4
Older drugsa 139 171 4.0 176 173 -0.4
New drugsb n.a. 224 n.a. n.a. 634 n.a.

11. 10
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Decomposing Changes in the Average Prescription Price of Brand-
Name Specialty Drugs in Part D Over the Two Analytical Periods
1,400
3,820
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2015 2015 2019
Shift Toward
New Drugs (1,090)
Shift Toward
New Drugs (100)
Shift Toward Higher-Priced
Drugs on the Market
in 2010 (800)
Shift Toward
Higher-Priced
Drugs on the
Market in 2015 (60)
Price Increases for Drugs
on the Market in 2010 (540)
Price Increases for
Drugs on the Market
in 2015 (280)
2015 Average
Prescription
Price (3,820)
2010 Average
Prescription
Price (1,400)
Average Prices In 2019 Dollars

12. 11
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Average Annual Increase in Retail and Net Prices for Brand-Name
Drugs in Part D for Two Analytical Periods
10.0
8.5
10.4
7.0
5.8
7.4
5.5
4.7
6.0
1.1
2.5
-0.4
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Overall Specialty Nonspecialty Overall Specialty Nonspecialty
Percent
2010 to 2015 2015 to 2019
Retail Prices Net Prices

13. 12
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Discounts and Rebates as a Share of Retail Spending on
Brand-Name Drugs in Part D
0 10 20 30 40 50 60
Overall
Specialty
Nonspecialty
Percent
2010 2015 2019

14. 13
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Comparing Net Price Growth for Brand-Name Specialty Drugs Over
Two Periods, With and Without Drugs That Treat Hepatitis C
Percent
2010 to 2015 2015 to 2019
Original Analysis
Compound annual growth rate of the price of a
prescription
22.3 2.7
Average annual year-over-year price growth 5.8 2.5
Excluding Drugs That Treat Hepatitis C
Compound annual growth rate of the price of a
prescription
18.1 14.3
Average annual year-over-year price growth 7.0 4.1

15. 14
Source: Author’s analysis of Medicare Part D claims data, as well as data on discounts and rebates.
Annual Spending on Brand-Name Specialty Drugs Among Medicare
Part D Enrollees Who Used Such Drugs in 2010, 2015, and 2017
13,020
10,100
2,010
35,690
39,180
3,780
35,990
41,670
3,850
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Per-user spending, all enrollees Per-user spending, enrollees
without cost-sharing support
Per-user out-of-pocket costs,
enrollees without cost-sharing
support
2019 Dollars
2010 2015 2017

16. 15
1. Net spending per enrollee in Part D was roughly $2,700 (in 2018 dollars) over the 2009‒2018 period. Congressional Budget Office, Prescription Drugs: Spending, Use, and Prices (January 2022),
www.cbo.gov/publication/57050.
Spending and average cost growth for brand-name specialty drugs continued to
increase after 2015, albeit at a slower rate.
▪ Slower growth was partly driven by the pricing and volume dynamics for
drugs that treat Hepatitis C.
Average cost growth fell substantially for brand-name nonspecialty drugs.
▪ Year-over-year prices fell, on average, for brand-name nonspecialty drugs
from 2015 to 2019.
Per-enrollee net spending in Part D has largely held steady in recent years.1
▪ Growing use of generic drugs offset increases in prices for brand-name
drugs.
▪ Future increases in prices for brand-name specialty drugs might have a
greater impact on Part D spending growth.
Discussion