It’s that time of the month again: NADAC survey results week. There was a lot of movement on drug prices, so be sure to click through our new updated visualizations (NADAC Change Packed Bubble Chart and Drug Pricing Dashboard) to see the impact.
As a reminder, each month retail pharmacies across the country are surveyed by Myers Stauffer (on behalf of the Centers for Medicare and Medicaid Services) on their wholesaler invoice prices. The results are then compiled and released either the third or fourth week of the following month. This week, survey results were released that reflect National Average Drug Acquisition Cost (NADAC) price changes from September. Here are our top five takeaways on the results:
1. Overall, Medicaid’s mix still deflated, but much less so than last month
Despite some interesting outliers, the October NADAC update still moved prices in the right direction, shaving $25 million off of annualized Medicaid spending, a much more tame number than the industry collectively put up last month ($220 million in deflation). This is explained in part by Figure 1, which shows that fewer generic drugs decreased by double digits compared to last month, while more generic drugs increased by double digits.
Last month, generic drug prices saw far more double-digit decreases vs increases. This month, things evened out: 375 double-digit decreases and 374 double-digit increases. So, last month was essentially a push, but it looks like things still leaned in a positive direction for the third straight month. This is great, but what’s going on in the details?
2. Generic Tamiflu (Oseltamivir Phosphate) is heading in the wrong direction
Last month, we highlighted the downward move in generic Tamiflu (Oseltamivir Phosphate) prices. It turns out that move was much ado about nothing, with this month’s survey price shooting right back up to where it was two months ago (Figure 2). While it’s difficult to determine why the price is in such a state of flux, it could be related to pharmacies possibly building “anticipation inventory,” or stocking up on generic Tamiflu to prepare for a predicted run on the supply as flu season approaches.
Overall, the 20% month-over-month increase, when applied to Medicaid’s Q1 2018 mix, resulted in the ugly yellow appendage hanging off an otherwise organized bubble chart (Figure 3), and more notably, a large offset to Medicaid’s annualized generic deflation in this monthly pricing update. You can use our freshly-updated NADAC Change Packed Bubble Chart to see the degree with which each drug is inflating or deflating in price.
Of course, as we noted last month, annualizing the impact of this drug using Q1 2018 utilization data is exaggerating its impact on Medicaid (either good or bad) given how heavily weighted its usage is towards flu season. That said, a 20% flip-flop in the price of a drug this important is a bit perplexing. This is just another helpful reminder that even though generic prices will trend down over time, on a month-to-month basis they are about as hard to predict as stock prices.
3. The cost of medication-assisted treatment for addiction is getting cheaper
Thankfully, one of the highest-utilization drugs in Medicaid – generic Suboxone (Buprenorphine-Naloxone 8-2 MG SL Tablet) – took another tumble this month, dropping 14% to $2 per tablet (Figure 4). The price decline of this important addiction treatment is significant, as state Medicaid programs spent a whopping $129 million on this drug in 2017, fourth among all generics. And while this should be substantial savings for taxpayers at the state level, as a common medication in other plans, this should also have a big impact on the drug budgets in Medicare Part D, commercial plans, and patients who may have to pay out of pocket.
4. ADHD drug prices remain stubbornly high
Incidentally, the top three generics in terms of overall Medicaid spend were all different strengths of the same ADHD treatment drug, generic Concerta (Methylphenidate, specifically strengths 36 MG, 54 MG, and 27 MG in that order). The three together added nearly $600 million of spend in 2017 for state Medicaid programs, and were scrutinized by the U.S. Senate last year for significant price increases. Interestingly, the generic is not even at much of a discount to the brand (Figure 5), making us wonder how much savings Medicaid is truly realizing on this generic drug after accounting for the likely sizable rebates it would receive on the brand.
The story gets even more complicated by bioequivalence issues of a few generic manufacturers’ versions of this drug, which appear to have thrown a wrench in the market’s effectiveness in bringing the price down. Clearly, there are a lot of moving parts to this story that we don’t fully understand, but with how much of this drug is (sadly) dispensed in Medicaid, we’ll study up, keep a close eye on it, and report out as we learn more. If you have any insights, we’d welcome them.
5. Keep an eye on generic Diovan (Valsartan) prices
There has been a lot of news recently about quality issues with generic Diovan (Valsartan), and it appears those quality issues have come to a head and are now impacting the supply and the price.
The FDA placed Zhejiang Huahai Pharmaceuticals on import alert on September 28, 2018, after carcinogenic impurities were discovered in the active pharmaceutical ingredient (API) Valsartan, which is produced by Zhejiang Huahai. The import alert stopped all API made by Zhejiang Huahai and any drugs manufactured using their API from legally entering the United States. While the FDA has since eroded the import prohibition a bit, unfortunately, it appears this problem could get even worse.
For those of you that have read our Hydroxychloroquine report, this situation sounds eerily familiar: a supply disruption sending the market into a bit of chaos, resulting in shortages and massive price hikes. So of course, our next stop was to check our Medicaid Market Share by Manufacturer Dashboard (embedded within the Hydroxychloroquine report) to get a sense if Valsartan production was disproportionately concentrated in any one manufacturer. It turns out that manufacturer Solco Healthcare had over 60% of market share in Q1 2018 for the 80 MG strength (Figure 6), and Solco is a fully-owned subsidiary of Zhejiang Huahai Pharmaceuticals. Uh oh. We’ve seen how this story plays out, and it doesn’t end well.
To be fair, we cannot conclude that we have a for-sure shortage problem based on the data we have presented here. The import ban applies to Zhejiang Huahai’s Chuannan factory, and we have no way of knowing if this factory supplied most of Medicaid’s supply of Valsartan, or really any of the U.S. supply for that matter. Part of the problem is that there is very little public knowledge and transparency on what APIs are being utilized by what manufacturers, because that information is proprietary and kept under lock and key. It would seem that breaking open that black box would help better insulate the market from unpredictable supply disruptions and also help keep patients safe.
According to Erin Fox, the Senior Director of Drug Information and Support Services for the University of Utah, who tracks drug shortages for the American Society of Health-System Pharmacists, “More than 80% of the raw materials needed to make medications are obtained from China and India. FDA approves the API sources for drug companies, but doesn’t always know which company is being used at any given time. This situation puts our country at a significant national security risk if any disruptions occur. Manufacturers are responsible for ensuring the API they use meets specifications, however recent FDA inspections of API suppliers show disturbing trends of falsified data or contamination. Most recently, Zhejiang Huahai Pharmaceuticals was cited for changing production methodology which introduced carcinogenic contamination into the raw materials they produced.”
Unfortunately, there’s a lot that we don’t (but should) know as it pertains to active pharmaceutical ingredients, but here’s what we do know about what’s happening to the price of Valsartan: all strengths shot up in the latest NADAC survey, with the 160 MG and 80 MG strengths more than doubling (Figure 7).
With 15.3 million tablets dispensed in 2017 (all strengths), a doubling in this inexpensive drug is not a huge cost burden to Medicaid. But if this follows the unfortunate path of Hydroxychloroquine into the $2+ per tablet range, it could pinch many tight Medicaid budgets and create problems for private payers with high-deductible plans that have members that may be exposed to this price increase.
46brooklyn Research co-founder Eric Pachman discussed the price increase with Michael Erman at Reuters yesterday, and highlighted the issues surrounding sporadic price increases that provide opportunities for the drug supply chain to inflate mark-ups for longer than the actual duration of the supply shortage. You can read the Reuters piece on Valsartan here.
What are you seeing?
While we spend more time than we’d like to admit studying the pricing changes during each NADAC Survey Results Week, we don’t always catch every story worth noting. If you’re seeing any interesting movement on drugs in the dataset, let us know.