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The latest QuintilesIMS report on medicine spending in the US was released in May and the numbers show a significant deviation from the previous two years. Spending reached $323Bn, but growth slowed to 4.8% in 2016 — less than half the rate seen in 2014 and 2015.

Spending continued to shift from traditional to specialty medicines, and growth was driven by both brands that launched over the past three years, and protected brands with price increases. Over 50% of positive spending growth in 2016 was from new brands that have been available for less than 24 months, including innovative new treatments for hepatitis, cancer, diabetes, and other chronic conditions. These medicines drove $17.4Bn of new spending growth on an invoice price level, and an estimated $13.4Bn on a net basis, which is significantly higher than historical levels, but lower than the prior two years. The number of new medicines launched in 2016 fell to fewer than half the number launched the prior two years, signaling a slowdown in new brand growth in the near term.

U.S. Medicines Growth Slowed by Half in 2016 to 4.8% on a Net Basis

Key findings 

The other big growth story is in biologic drugs, which saw double digits increases driven by innovation. However, we are also beginning to see the impact of biosimilars -- a trend that will have a long term impact on spending going forward. The benefits seen from new product launches were offset by competition for brands resulting from the expiry of patents and other forms of market exclusivity. Spending on such brands fell by $14.0Bn in 2016, about the same impact as in 2015, but much lower than the landmark year of 2012 when the comparable impact was $32.6Bn.

Lack of transparency frustrates growth

Beyond the numbers, the continuing trend in 2016 was the impact of concerns about pricing. While the rate of growth slowed overall, it is still higher than inflation, and thus continues to draw intense focus in public discourse. Stakeholders are particularly troubled by the lack of transparency in the way drugs are priced -- and for whom. While overall more patients now have access to medicines through insurance and low-cost generics, and overall out of pocket costs declined by more than a dollar over the last three years, there are a minority of patients who face substantial out-of-pocket costs and experience a dramatically different trend in their spending on medicines than other patients and the system overall.

There is so much discussion about patient exposure to list prices, and lack of clarity about out-of-pocket costs after rebates and incentives, that it is driving patients to switch drugs without understanding the real costs. When examined through the lens of net spending and prices -- after off-invoice discounts and rebates -- drug spending and prices appear substantially lower, however patients’ out of pocket costs are influenced by multiple factors and remain the most commonly misunderstand part of the evolving “price story” in U.S. healthcare.

We saw the impact of these pricing concerns in the limited increase in pricing. The average net price for brands already in the market experienced significantly lower growth than seen in prior years. This reflects the heightened competition among manufacturers and more aggressive efforts by health plans and pharmacy benefit managers to limit price growth. The ongoing efforts to pass healthcare legislative reforms brings into even sharper focus the still remaining challenges around access and affordability to innovative and life-saving medicines.

It is a complex issue, particularly as drug pricing varies depending on patients’ insurance plans, access to coupons, their overall healthcare usage, sometimes the time of the year, which pharmacy they go to, and significantly their disease or diseases. It is important for healthcare stakeholders to pay attention to this trend, and to understand the impact that patient perception has on their use of medicines. Even if they have access to tools that can lower their medicine costs, data suggests that many patient will walk away from a medicine if they deem the perceived out of pocket cost to be too high. If the pharma industry wants these patients to stick with a brand prescribed by their doctor they need to think about how they can create greater clarity around pricing, and educate patients about the value proposition of their drugs.