Drug market 'war' costs $93 billion annually: Higher prices lead to increased spending on utilization management

The pharmaceutical industry is experiencing an ongoing loop of increasing drug costs due to drug utilization management programs that are a response to higher drug costs, a new study in Health Affairs has found.

The report described an “escalating cycle” that results in $93.3 billion in annual costs—just for drug utilization management. Part of the impetus for this spending is the increasing use of high-priced specialty drugs, the report said. With costs to payers rising, they are implementing more stringent prior authorization and formulary policies, while increasing the cost-sharing burden on patients.

“The US health system is experiencing a vicious cycle of ever-higher list prices leading to ever-greater access restrictions, which in turn is prompting further price increases and even more burdensome restrictions,” the report said. “All stakeholders would benefit from a thoughtful moderation of this marketplace war of ‘all against all.’”

Drug utilization management: a complex system

The report noted the many moving parts of drug utilization: patients consult with doctors, who make prescriptions, which must be approved by the pharmacy benefit manager or other payer. Prior authorization and cost sharing systems are involved. Appeals can be made. Sometimes an attempt to fill a prescription is abandoned due to complexity or cost—leading to a either a new cycle of attempted treatment, or ending the treatment attempt, which could have other long-term costs.

The authors said that they could not quantify all costs of drug utilization management. “Numerous expenditures could not be quantified; thus, we believe that our findings represent an underestimation, and perhaps a major underestimation, of the full cost of drug utilization management,” the report said.

Costs for all stakeholders

For the study, the authors looked at peer-reviewed literature, industry reports, journalistic articles, and other documents to get a handle on the costs that come from drug utilization management.

The researchers found that all stakeholders have some degree of costs as utilization management becomes more restrictive. The report said that payers spend $6 billion each year on the administration of drug prior authorizations.

For pharmaceutical manufacturers, the report said that $24.8 billion is spent annually on administrative support programs, direct financial support, and drug donations related to drug utilization management. “This figure does not include the loss to manufacturers from reduced sales on prescriptions that were rejected by payers or that patients did not fill because of cost sharing,” the authors wrote.

For providers, it was estimated that physician practices spend $26.7 billion per year interacting with payers over prescription orders. Much of the time cost involved navigating prior authorization requirements.

With patients, the study estimated that they spend $35.8 billion annually in drug cost-sharing, even after taking account of manufacturer and philanthropic support such as rebates. The study noted that the complexity and cost of the system means that approximately 20% of prescriptions are never filled—leading to long-term health outcomes that carry high costs as well. The study did not include those costs.

Wanted: a better system

The report concluded with a discussion of how to improve the U.S. system of drug utilization management. It noted that many are calling for a value-based criteria for pricing, which would establish benchmarks from which prior authorization and cost-sharing terms could be set.

“The US drug pricing and access system is economically and politically unsustainable,” the authors wrote. “It is reliant on high list prices and onerous barriers to patient access. The $93.3 billion of costs incurred annually for drug utilization management is one of the most counterproductive uses of resources in the U.S. health care system and should be targeted by all stakeholders. A broader exchange of value-based price for value-based access would permit a reduction in spending on the creation and countering of utilization management.”