Drug price increases are managed and steady now

John Commins, Senior Editor at HealthLeaders Media, interviewing Eric Tichy, Pharm.D., MBA, vice chair of pharmacy formulary at the Mayo Clinic, 12/21/23, “Modest Drug Costs Hikes Predicted for 2024. Drug Expenditures Are a Different Story.” Dummy Head | HealthLeaders Media, . ES - HW

The pharmaceutical sector is a hive of activity these days, buzzing with breakthrough treatments for stubborn diseases such as Alzheimer's and obesity, and with sickle cell anemia, an outfight cure.

These drugs can be very expensive. The gene therapy needed to cure sickle cell anemia, for example, costs almost $3 million per patient. By comparison, the Alzheimer's drug Leqembi, at almost $25,500 per patient, per year, seems like a bargain. The wildly popular weight-loss drug Ozempic, with a cost of merely $900 to $1,300 per month, sounds like a giveaway.

Despite the headlines that conflate expensive new drug treatments with rising drug costs, Eric Tichy, Pharm.D., MBA, vice chair of pharmacy formulary at the Mayo ClinicMayo Clinic, says it's important to make the distinctions between drug costs and drug expenditures.

He offers his thoughts on the topic, and other issues that are expected to confront providers in 2024 in this interview, which has been edited for brevity and clarity.

HL: Do you anticipate big drug price hikes in 2024?

Tichy: There are several things that are going to prevent inflation of drug prices. One of those is the Inflation Reduction Act, which has caps on how much a drug price can be raised year-over-year based on the Consumer Price Index for that given year.

Where we've seen a lot of spend increase over the last couple of years is where there's new drugs developed to treat things that didn't exist before. Think about Alzheimer's disease, where there haven't been effective medications in the marketplace in the last two or three decades. There are some new medications that have been approved to treat Alzheimer's and they're modestly expensive. However, the population of how many people can be treated is very high. That's something that could increase expenditures.

Also, we haven't had effective weight-loss medications until very recently. When you have a therapy that meets an unmet need, there can be huge demand. That's why there's so much uptake of those medications. Those are our biggest drug spends now. Weight-loss drugs will be the No. 1 spend in 2023 once we have all the data.

There's potentially huge downstream savings. We're learning, for example, that some of these medications prevent heart attacks and things like that. But we need time. With some of these savings, we won't see it for 10, 15, 20 years. As we have more of that information over time, it will support the prices of these medications and make the case for why payers should cover them.

HL: What is driving high drug costs?

Tichy: Some of these new drugs treat very rare conditions affecting small populations, and they’re priced to maintain profitability for the manufacturers, despite a low treatment population. If you didn't have these prices, there would not be incentives for manufacturers to develop these products.

The Orphan Drug Act was developed to incentivize production of these rare medications that treat rare conditions, and new developments in medicine have allowed us to get more precise with how we treat these conditions. It's this confluence that's leading to a larger number of high-cost products hitting the marketplace.

There's also an important nuance between drug prices and drug expenditures. I expect the price growth will be close to inflation, maybe even less than inflation. It has been less than inflation for the last couple of years.

People conflate expenditures with prices, and we expect drug expenditures will keep going up. A lot of that's because there are new drugs for things that as of yet don't have treatments, or there are drugs being developed where the current treatment is cheap but ineffective.