Department of Managed Health Care Issues Prescription Drug Cost Transparency Report for Measurement Year 2020

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By Hunter W. Collins

On December 27, 2021, the Department of Managed Health Care (DMHC) released its Prescription Drug Cost Transparency Report for Measurement Year 2020. Pursuant to SB 17 (Hernandez) (Chapter 603, Statutes of 2017), Health and Safety Code section 1367.243 requires health plans that offer commercial products and file rate information with DMHC to report, for all covered prescription drugs annually, the 25 most frequently prescribed drugs, the 25 most costly drugs by total annual spending, and the 25 drugs with the highest year-over-year increase in total annual plan spending. This provision also requires DMHC to compile the data into a report for the public and the legislature that demonstrates the overall impact of drug costs on health care premiums and post its report on its website every year on January 1. [23:1 CRLR 26–27] The most recent report looks at the impact of the cost of prescription drugs on health plan premiums compared to data over-reporting years: 2017, 2018, 2019, and 2020.

In a press release issued by the Department, DMHC Director Mary Watanabe commented that the amount health plans paid for prescription drugs has increased by $1.5 billion since 2017, showing that “the cost of prescription drugs continued to outpace the growth of overall medical expenses in health plan premiums,” and that “[t]his report provides greater transparency into prescription drug costs and provides important information about the impact prescription drug costs have on health plan premiums.” Other key findings indicated that health plans paid more than $10.1 billion for prescription drugs in 2020, an increase of almost $500 million or 5% from 2019. The Department found that prescription drugs accounted for 12.7% of total health plan premiums in 2020, a slight decrease from 12.8% in 2019. Prescription drugs accounted for 12.9% of total health plan premiums in 2017.

Health plans’ prescription drug costs increased by 5% in 2020, whereas medical expenses increased by 3.7%. Overall, total health plan premiums increased by 5.9% from 2019 to 2020. Manufacturer drug rebates totaled approximately $1.437 billion, up from $1.205 billion in 2019 and $1.058 billion in 2018, representing about 14.2% of the $10.1 billion spent on prescription drugs in 2020.

According to the report, while specialty drugs accounted for only 1.6% of all prescription drugs dispensed, they accounted for 60.2% of total annual spending on prescription drugs. Generic drugs accounted for 89.1% of all prescribed drugs but only 18.1% of the total annual spending on prescription drugs. Brand name drugs accounted for 9.3% of prescriptions and constituted 21.7% of the total annual spending on prescription drugs. The 25 Most Frequently Prescribed Drugs represented 48.2% of all drugs prescribed and approximately 46.2% of the total annual spending on prescription drugs. For the 25 Most Frequently Prescribed Drugs, enrollees paid 2.9% of the cost of specialty drugs, 11.5% of the cost of brand name drugs, and 59.2% of the cost of generics. Of the 12.7% of total health plan premium spent on prescription drugs, the 25 Most Costly Drugs accounted for 7.2%. Overall, health plans paid 92.8% of the cost of the 25 Most Costly Drugs across all three categories (generic, brand name, and specialty).

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