Three months into COVID-19, and things are looking down (in a good way)
On July 22, CMS published its latest update to the National Average Drug Acquisition Cost (NADAC) database. For the uninitiated, NADAC is the best national public database of surveyed pharmacy invoice costs to acquire prescription drugs. In other words, if you are looking to understand what pharmacies are paying to purchase drugs from their wholesalers each month (before rebates), and you don’t want to cough up a boat load of money to pay for it, NADAC is where you must go.
As we’ve discussed at length in recent months, NADAC is lagged by roughly two months. So the survey prices we just received last week reflect pharmacy invoice costs from May.
Remember May? That unsettling mixture of fear (of COVID-19) and hope (that locking down would actually flatten the curve, and allow us to return to normalcy in the fall)? So much for that.
While the whole COVID-19 experience didn’t go as planned, the impact on the drug supply chain has been a mixed bag.
If you were concerned about COVID-19’s impact on medication access, certainly there has been some disruption. A quick scan of our archived FDA drug shortage files shows there has been a 17% increase in drugs reported on shortage (marked by FDA as “current”) over the past four months (99 drugs on March 15; 116 drugs on July 17).
But we’re not talking about access today (don’t worry, we will revisit this topic in due time). If you expected COVID-19 to cause generic drug prices to explode, well, it doesn’t appear that generic drugs got the memo. In fact, generic prices appear to be living the version of 2020 we all wish we were living: one that ideally didn’t involve a deadly pandemic exacerbated by the U.S.’s politicization of, well, just about anything you can politicize.
Thankfully, it’s not possible to politicize raw generic drug pricing data. It just does its own thing, paying no attention to our biases or the cause and effect narratives cooked up by our far too limited minds. For example, it does things like printing $159 million in deflation (based on Medicaid’s drug mix) smack in the middle of the eye of the pandemic storm. This is great (albeit hard to explain) news! And it comes at a crucial time, because payers like state Medicaid departments are going to need every bit of these savings to help offset cratering state revenues.
That’s the long and short of it this month. But if you want the details on all of the moving parts, please read on. Working with data – which lacks of opinions, prejudices, biases, and political affiliation – has brought us much peace and tranquility throughout this insane year. So go ahead and nerd out with us in the generic drug pricing data weeds.
1. A mixed unweighted generic drug price change picture
Each month, we first look at how many generic drugs went up and down in the latest month’s survey of retail pharmacy acquisition costs, and compare that to the prior month (Figure 1).
Basically, the quick way to read Figure 1 is to look for blue bars that are taller than orange bars to the left of the dotted line, and exactly the opposite to the right of the dotted line. That would indicate a good month – more generic drugs going down in price compared to the prior month, and less drug prices going up.
Figure 1
Source: Data.Medicaid.gov, 46brooklyn Research
That’s not exactly what happened this month. In fact, when we look at drugs that moved one way or another by single-digit percentages, the opposite occurred – there were 10% fewer drugs that decreased in price by 0-10% and 9% more drugs that increased by 0-10%. That’s a bummer … until you start looking at the drugs that moved one way or another by double-digit percentages – 34% more drugs decreased by more than 10% while 17% fewer drugs increased by more than 10%. Those are some impressive stats, which bode well for what you are about to read in the next section.
2. Weighted Medicaid generic deflation balloons to $159 million
As we’ve written in prior updates, knowing the price changes alone are not enough. We need to apply utilization (drug mix) to the price changes, which is the purpose of the NADAC Change Packed Bubble Chart (Figure 2). We use Medicaid’s Q4 2018 through Q3 2019 drug mix to arrive at an estimate of the total dollar impact of the latest NADAC pricing update. This helps quantify the real impact of those price changes from a payer’s perspective.
The green bubbles on the right of the Bubble Chart viz (screenshot below in Figure 2) are the generic drugs that experienced a price decline in the latest survey, while the yellow/orange/red bubbles on the left are those drugs that experienced a price increase. The size of each bubble represents the dollar impact of the drug on state Medicaid programs, based on utilization of the drug in the most recent trailing 12-month period. Stated differently, we simply multiply the latest survey price changes by aggregate drug utilization in Medicaid over the past year, add up all the bubbles, and get the total inflation/deflation impact of the survey changes.
Figure 2
Source: Data.Medicaid.gov, 46brooklyn Research
We should note that this is the second month of $150+ million month-over-month deflation in 2020. This follows a 2019 that had zero $150+ million deflation months. So we may need to reset our expectations. Aggregate generic drug pricing deflation is not just weathering the storm – it appears to be somehow strengthening during it.
3. Year-over-year generic deflation climbs back into the double-digits
Ever since last June, we have been tracking year-over-year generic deflation for all generic drugs that have a NADAC. We once again weight all price changes using Medicaid’s utilization data. Over the past year, we have been seeing a gradual compression in deflation. But oddly enough, as the pandemic started, this trend started to reverse. This month, YoY generic deflation on oral solids rocketed up to 13.9%, crossing above the trailing 24-month average. Meanwhile, deflation on all generics stepped up into double digits (10.3%) for the first time in 11 months (Figure 3).
Figure 3
Source: Data.Medicaid.gov, 46brooklyn Research
4. Prices of methylphenidate products drop significantly
Methylphenidate is a stimulant medication primarily used to treat attention deficit hyperactivity disorder (ADHD). Marketed under recognizable brand names like Ritalin or Concerta, it is a medication that is heavily utilized in Medicaid, given that approximately 37% of all school aged children are enrolled in Medicaid & Children’s Health Insurance Program (CHIP) programs throughout our country.
In July, the NADAC for three products of methylphenidate (methylphenidate ER 18 mg, 36 mg, and 54 mg; i.e. generic Concerta products) accounted for over $50 million in YoY generic deflation for Medicaid (~1/3 of all savings) due to decline in NADAC unit costs between $0.41 to $1.84 per unit for these products (as seen in Figure 4). Just these three strengths of methylphenidate account for over 1.5 million annual Medicaid prescriptions.
Figure 4
Source: Data.Medicaid.gov, 46brooklyn Research
Conversely, one of the largest unit cost increases (based upon percentage increase) this month was another methylphenidate product, namely methylphenidate ER 10mg tablets. The NADAC for this product rose $0.74 per unit (or 41%) adding $472,000 in added cost to Medicaid across the ~45,000 prescriptions dispensed per year.
We often make a point of discussing how it is one thing to know whether a drug increased or decreased in price and another thing entirely to know whether it is a medication that people actually take (and therefore a meaningful price reduction). Medicaid’s drug mix includes a significant amount of medication utilization and costs in medications used to treat ADHD – meaning that changes in these products often have a significant impact to Medicaid’s overall movement (frequent readers will note this is not the first time we’ve talked about methylphenidate). As shown in Figure 6, 3% of overall utilization and 5% of overall expenditures from Q4 2018 to Q3 2019 were for medications used to treat ADHD.
Until such time as prescribers and/or patients are more aware of the variability in the costs from one product to another (be it methylphenidate or something else), this is likely a topic that we will keep on discussing.
5. Hydroxychloroquine returns to deflation
At this point generic Plaquenil (hydroxychloroquine) is a medication that likely needs no introduction. Hydroxychloroquine was for a long time a little known therapy used to treat malaria or lupus; it became a medication known to most when it was being discussed as a possible treatment for COVID-19. And while the medication continues to crop up in the occasional clinical trial related to COVID-19, the hype around the medication has certainly died down and we’re beginning to see that reflected in the NADAC data.
From 2019 into early 2020, hydroxychloroquine’s NADAC was on a steady, if modest, decline, month-over-month. That was until the price jumped in the May 2020 NADAC reporting by 35%. Well, as of the July NADAC update, the price for hydroxychloroquine has declined $0.04 per unit (or 12%). While this does not return hydroxychloroquine to its 2020 low price point, if this trend continues – perhaps because some states are sitting on massive stock piles (i.e. inventory that exceeds demand) – more deflation may quickly arrive for this product, dropping its price back in line to where it was heading before COVID-19.
6. Dexamethasone prices remain relatively flat
Speaking of COVID-19, since we last posted an update to NADAC, the latest medication to garner the spotlight related to the ongoing pandemic is the steroid dexamethasone. As a steroid, the historic uses for dexamethasone are extensive but include treating allergic reactions, hormone insufficiencies, blood disorders, kidney disease, respiratory conditions, and inflammatory conditions (i.e. arthritis).
In July, a group of researchers in the UK published a study identifying positive mortality outcomes (i.e. fewer deaths) for patients on ventilators compared to patients who did not receive dexamethasone. As a result, current guidelines (as of July 23, 2020) recommend dexamethasone for mechanically ventilated patients for up to 10 days and in patients who require oxygen but are not on ventilators. Note, that dexamethasone is not recommended as preventative or prophylactic therapy for COVID-19. Significant harm can come from inappropriate and/or long-term use of steroids. Given the rush to acquire hydroxychloroquine that happened the first time a medication treatment was widely mentioned in regards to COVID-19, this seems to be an important point to emphasize in our discussion of dexamethasone.
The NADAC prices for dexamethasone products have remained relatively flat into the July NADAC update. In Figure 8 we show the NADAC prices for the oral dosage forms of dexamethasone (less likely to be used related to COVID-19 as these dosage forms are not easily administered to someone on a ventilator).
In Figure 9 we show the NADAC prices for the injectable dosage forms of dexamethasone.
Before we go singing the praises of the generic drug supply chain any further, and thanking it for keeping the prices of dexamethasone under control, we must remind you that NADAC prices lag by about two months. So the prices currently reported in this update, and shown in Figures 8 & 9, do not reflect current purchases for dexamethasone, rather are based upon what pharmacies were purchasing dexamethasone at two months ago. When we recognize that injectable dexamethasone products are largely on back order across the U.S., this medication can serve as an important reminder to providers to utilize the NADAC hotline and report issues with NADAC prices based upon the current market conditions.
7. ADPIT is all about generic Zoloft (sertraline) this month
Finally, let’s check in on our Abnormal Drug Pricing Increase Tracker (ADPIT) and see what it has to say about this month’s data. As a reminder, ADPIT takes all of the NADAC prices for one drug over any given 52-week period, ranks them, finds the 90th percentile for the price, and then compares the current price to that 90th percentile price. If the current price is above the 90th percentile, we consider the current week’s price to be “abnormal” and add it to the list for you to peruse. Then we do this for another 20,000 or so drugs for good measure to complete the list, shown in Figure 10.
If this is the first time you are seeing this, we include the number of annual Medicaid prescriptions for each of these abnormally priced drugs, and then two metrics we created – one called Relative Impact Ratio (RIR) and another called Relative Impact Score (RIS). RIR simply tells you how far above the 90th percentile a drug’s price currently is (i.e. sertraline HCL 50 MG MG Tablet at 1.49 means its 49% above its T-52 week 90th percentile price). RIS multiplies the number of annual Medicaid prescriptions by (RIR - 1) to size the impact of the “pricing abnormality” (for sertraline, 49% x 3,117,444 prescriptions = 1,545,519). Add up all the RIS for all of the drugs each week, take the four-week moving average, and you get the chart in bottom right of Figure 10 (which sizes the aggregate weighted impact each week). We then divide the bottom right chart into drugs with active ingredients in ongoing COVID-19 clinical trials, and all other drugs. Check out our interactive ADPIT tool here, and find more information on how to use it here and here.
Figure 10
Source: Data.Medicaid.gov, ClinicalTrials.gov, 46brooklyn Research
Within seconds of updating ADPIT, we realized that sertraline was this month’s story. This drug checked off all the boxes this month. Massive Medicaid volume? With 8.32 million claims on the top three strength that’s a Check. Steep uncharacteristic spike in price? Take a look at the chart. Big Check. Put the two together, and the top three strengths of sertraline dominated the RIS leaderboard. In fact, the last time we have seen a drug post an RIS of more than 1 million, it was ranitidine, which some may recall was pulled by the FDA due to increased cancer risks due to the presence of a contaminant called NDMA. So, needless to say, sertraline’s price movement got our attention.
The next logical question was of course, “why?”’ Both the FDA and ASHP drug shortage databases provided with the answer to that question, with each dutifully reporting sertraline oral tablets currently in shortage. But the juiciest scoop here came in the details provided by sertraline drugmaker Accord on ASHP’s drug shortage web site. They claimed they were “unable to obtain active pharmaceutical ingredient to manufacture sertraline due to effects of COVID-19”.
Since the start of COVID-19, many have predicted that shortages of pharmaceutical ingredients would likely occur. We don’t need to review the commonly held view that there is risk in offshoring basically all of our generic production, especially during pandemics that have an uncanny ability to disrupt global supply chains. We just haven’t seen complete end-to-end evidence (from shortage databases to price) that it’s happening to generic drugs. Until now.
There’s one last part of this unfortunate story. Many may not recognize the name sertraline, but probably have heard of its trade name, Zoloft. Zoloft is one of the most inexpensive and commonly dispensed drugs prescribed for depression, a condition that is unfortunately growing in prevalence thanks to COVID-induced solitary confinement. So, it appears that COVID-19 has gut-punched a supply chain designed to produce treatments for a condition that it itself has (indirectly) caused to flourish. It’s all sad enough to drive drug pricing and supply chain researchers to despair.
But this was supposed to be a happy report! We just got $159 million in monthly generic deflation and far cheaper ADHD drugs. This month’s savings should make real impact to state Medicaid programs and other payers going forward. Time to celebrate!