U.S. Drug Costs Dropped in 2012, but Rises Loom Katie Thomas The New York Times March 18, Presented by: Rohan Bhalla

Decrease in Spending Spending on prescription drugs nationwide has been slowing for years because of the increasing use of low- cost generics. In 2012, money spent on prescription drugs dropped by 1 percent, to $325.7 billion. First time the research firm IMS Health had recorded a decrease in U.S. drug sales since the company began tracking these numbers in This past month, Express Scripts (pharmacy benefit manager) reported a 1.5% drop in spending on commonly used pills (high BP and cholesterol).

The “Golden” Era U.S. in the midst of “golden” period Warning: use of generics has masked a growing problem for the government, insurers and others who pay the bill for prescription drugs Problem: the rising cost of complex specialty medicines that treat cancer, rheumatoid arthritis, and other diseases. Potential for higher spending on drugs comes as the nation is struggling over how to contain the cost of health care - a major threat to the country’s fiscal condition.

“Patent” Cliff Despite recent slowdown in the growth of spending on overall health care, rising health costs will eventually overwhelm the federal budget and make basic health care unaffordable for many Americans. Not a major cause of rising costs, but drugs account for ~15% of nation’s health care expenditures. Sources say the forces that have been holding down drug costs are beginning to subside. Dozens of brand-name products, like anticholesterol drug Lipitor, and Plavix (which prevents blood clots) have lost their patent protection, a phenomenon called the “patent cliff”.

Saturation of Generic Drugs Use of generic drugs may also be nearing saturation point. In 2012, 84 percent of all prescriptions were dispensed as generics, according to IMS, the highest rate in history. Estimate - use of generics may reach 86 or 87 percent Slowdown in health care spending also attributed to the weak economy - patients cut back on visits to the doctor and filling prescriptions.

The Economics

Effects of the “Patent” Cliff D S D* P Q QQ* P P* Supply and Demand for Generic Drugs Q2Q2

The Economics

Future Steps Several insurers and drug-benefit managers say they are already taking steps to try to rein in the cost of specialty drugs. Requiring prior approval for high-price drugs or asking patients to try older, less expensive treatments first. Many are placing their hopes in biosimilars, what many consider to be the generics of the future. Biosimilar drugs would have the same effect in the body as the original biologic drug. They will not be cheap. Estimated that the drugs will sell from 30 percent to 50 percent less than the brand-name price In comparison, traditional generics can be discounted as much as 80 percent.

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