Prescription drug costs are the fastest growing segment of health care spending nationwide. 'Yet more than one-third of the 38 million people coveyed by Medicare have no prescription drug coverage, and many of those who are covered have limited coverage with substantial out-of-pocket costs. It is not unusual for low-income patients without drug average to have to choose among food, rent, and expensive medication for such chronic conditions as hypertension or diabetes.
Other insured individuals, without a prescription drug benefit, face the same pressures, and those who completely lack insurance simply cannot afford the drugs that are prescribed for them. Experts are blaming a combination of factors for the rising costs: higher drug use, inappropriate drug use, and an increasingly aging population. Increases are not limited to just new drugs coming onto the market, on which many pharmaceutical companies have spent millions. Generic drugs, traditionally seen as less-expensive alternatives to brand name drugs, have increased in price as well.
To learn more about the rising costs of drugs and their effect on states, POLICY & PRACTICE talked with Paul L. Jeffrey, director of pharmacy for Massachusetts' Division of Medical Assistance in Boston. The division administers MassHealth, the state's Medicaid program.
Dr. Jeffrey is also an adjunct associate professor of clinical pharmacy at the Massachusetts College of Pharmacy and Allied Health Sciences and clinical assistant professor of pharmacy practice at Northeastern University. He has worked in community pharmacy and hospital pharmacy as a staff pharmacist and drug information specialist. His practice interests include the integration of pharmacoeconomic principles into health care management, the impact of the misuse of medications on the health care system, and the ethical and practical issues of pharmacotherapy research.
P&P: Let's begin by examining the factors related to the rising costs. To what do you attribute the increase in pharmacy costs?
Jeffrey: I think there are a host of reasons. One is that more people are taking more prescriptions. So we're seeing an overall inflation in the amount of prescription drugs that people are using. This is true of all populations, not just the Medicaid population.
Also, the drugs people are using tend to be the newer drugs, and they are more costly than the predecessor drugs. So while new drugs are coming onto the market to treat conditions not previously treated, we also have newer generations of drugs similar to their predecessors treating the same conditions but they may have some other advantage. They may have fewer side effects or they may be taken once a day instead of two or three times a day, for example. Newer drugs are always more costly than their predecessors. Until the patents for the new drugs expire, they maintain their brand name exclusivity and therefore they're more expensive than the predecessor drugs, which may be transitioning from their brand name status to a generic status.
Another factor is pure inflation-the price escalation that occurs just because of upward pressure on prices. In my estimation and from recent studies, however, inflation tends to be the smallest contributor. While the pure inflation factor for drugs might be 3 percent or 4 percent per year, that pales in comparison to the overall escalation rate of pharmaceutical expenditures, which is approximately 15 percent or 18 percent. I think this year we may even see 20 percent.
P&P: As an example of rising costs, can you share your state's pharmacy budget?
Jeffrey: Sure. In fiscal year (FY) 2000, our budget was $686 million. In FY 2001 it was $777 million. Our projection for FY 2002 is $887 million, but we may exceed that projection.
P&P: What are some cost-containment solutions for states to implement?
Jeffrey: There are many different …