Industry experts explored the increase in US prescription drug spending and how state spending targets come into play regarding patients’ rising out-of-pocket costs.
While state spending targets for prescription drugs are well-intended plans of action for saving patients money for out-of-pocket-costs, the targets do not address rising drug costs for high-value medications. If US drug expenditures continue rising throughout the country, spending targets will be unattainable, especially with opaque pricing practices that will make budgeting and planning for the next year unrealistic. Amidst hopeful state spending targets that may be difficult to execute, experts believe rising drug expenditures need to be addressed and decreased before targets can be useful for respective states.
“Rising pharmaceutical spending is particularly challenging for state governments, which are directly responsible for spending in Medicaid and state-sponsored insurance plans that cover government employees and incarcerated individuals. Unlike the federal government, states must balance the budget each year, meaning that higher spending on prescription drugs directly translates to less funding available for other state services, such as education and transportation,” wrote authors of a study published in Jama Health Forum.1
There are several key factors that have driven the recent increase in US health care expenditures, which surpassed $633 billion in 2022. Furthermore, 1 in 4 Americans say they struggle to pay for medication, creating a common trend of medication nonadherence across the country.
With the hopeful but difficult task of setting prescription drug spending targets, state officials and patients alike are subject to the unregulated practices of health care benefit entities, like insurers and pharmacy benefit managers, when it comes to estimating the price of medications.
“Specifically, 2 important spending offsets are difficult to measure. First, health insurer spending is offset by confidential manufacturer rebates; rebates vary by drug and offset more than one-third of prescription drug spending by private plans. Second, patient out-of-pocket spending is sometimes offset by manufacturer-sponsored copayment cards and patient assistance programs. Failing to account for these cost offsets could lead states to overestimate spending growth, especially because the sizes of rebates and manufacturer assistance have increased over time,” they continued.1
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A collection of states has spent the last few years establishing health care spending targets. From managed and primary care to pharmaceutical focuses, however, other states are more concerned with prescription drug spending. Indeed, Maine and New Hampshire are the first 2 states to consider spending targets exclusively for prescription drugs.1,2
“As part of their efforts to implement health care cost growth targets, several states now require payers to provide aggregate data on pharmaceutical rebates they receive. In Connecticut, Rhode Island, and Oregon, these new data show that even after accounting for rebates, spending on prescription drugs has continued to grow at an unaffordable rate,” wrote Mar et al for Health Affairs.2
While the introduction of prescription drug spending targets was a method to curb rising drug prices, it’s the inner workings of the supply chain—specifically with manufacturer rebates—that need to be changed before achieving said targets. However, Mar et al go into further detail explaining that even if rebates were not to be included within state target plans, the high costs of prescription medications are simply unaffordable for the general public.2
One of the strongest hopes for a turnaround of increasing drug prices has been the Inflation Reduction Act (IRA) of 2022.
“Under the [IRA], Medicare has begun negotiating prices for a limited number of high-spending drugs. State-regulated insurers could adopt these federally negotiated prices, although some drugs are exempt from Medicare negotiation, including drugs that are less than 9 years old. States could also enact their own policies to rein in prices for certain high-cost drugs,” wrote the authors.1
With the IRA gradually enacted from its 2022 introduction through 2025, year by year, patients will see out-of-pocket spending caps and Medicare price negotiations. However, a lot still must be done at individual state levels to ensure the proper action of IRA conditions, as well as increasing the possibility for the use of state spending targets.
Despite being a step in the right direction for states to answer to rising drug costs, spending targets need to be executed in collaboration with other government-regulated vehicles and plans to truly attack increasing expenditures head on.
“The high costs of prescription drugs present affordability challenges for patients and strain state budgets. New policies in Maine and New Hampshire to set spending targets demonstrate the appetite among states to address this problem, but legislators must recognize that these policies alone will likely be insufficient to curb prescription drug spending growth without proper measurement and enforcement. Spending targets should be part of a more comprehensive strategy to lower drug prices, decrease the use of low-value medications, and ensure that clinically important drugs are accessible and affordable to the patients who need them,” they concluded.1
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