Milliman Client Report
Understanding
Specialty Drug
Forecasts
Prepared for:
PhRMA
Prepared by:
Gabriela Dieguez, FSA, MAAA
Principal and Consulting Actuary
Bruce Pyenson, FSA, MAAA
Principal and Consulting Actuary
Jennifer Carioto, FSA, MAAA
Consulting Actuary
Milliman, Inc. New York
February 2015
Milliman Client Report
TABLE OF CONTENTS
EXECUTIVE SUMMARY
1
THE CHALLENGE OF FORECASTING SPECIALTY DRUGS: MANY DEFINITIONS AND METHODOLOGIES
Inconsistent definition
Cost components included in trends
Markets and populations included in specialty trend estimates
2
2
3
4
FORECASTS VARY AMONG ORGANIZATIONS AND BETWEEN REPORTS
A look at historical forecasts
5
6
LIMITATIONS
8
REFERENCES
9
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EXECUTIVE SUMMARY
Although specialty drugs are used by only a small portion of patients, the growth in specialty
drug spending has drawn attention on the past and future cost trends of these therapies.
Payers and policymakers use trend information for many purposes, including budgeting for
future healthcare spending and evaluating how a particular organization’s past spending
compares to benchmarks. For specialty drugs and healthcare in general there are many
published sources of trend information, but understanding how this information is produced is
critical to appropriately interpreting and using it.
Cost and utilization trend reports issued by Pharmacy Benefit Managers (PBMs)—specialized
companies that sell programs and services to employers and health plans to manage healthcare
costs—show a wide range of cost trends for specialty drugs. This document summarizes the
conflicting information contained in some of the publically available drug trend reports; our goal
is to identify why different reports present different trends. We also examine the accuracy of
historical forecasted trends produced by PBMs, and compare them to actual trends reported by
the same PBMs. Although producing accurate forecasts is inherently difficult, we found that, in
the past, PBM forecasts were systematically overstated – sometimes by as much as nine
percentage points for near term forecasts.
Published specialty trend reports use inconsistent definitions and methods that complicate the
interpretation and comparison of forecasts. The term “specialty drug” is not consistently defined
across health plans and PBMs, and the drug trend reports we studied use different definitions
for specialty drugs. In addition, the reported trends were produced by different methodologies.
These differences make it difficult to understand the value that payers may obtain by contracting
with different Pharmacy Benefit Managers or other healthcare companies.
This document focuses on specialty trends that appear in the drug trend reports published by
four prominent organizations:
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CVS/Caremark, a division of CVS Health (CVS),
Express Scripts (ESI),
Prime Therapeutics (Prime), and
Artemetrx.
CVS, ESI, and Prime are Pharmacy Benefit Managers, while Artemetrx is a data analytics /
service company. We took the information in these reports at face value and did not attempt to
independently verify the data. In our opinion, readers would benefit if the trend reports provided
more information on their methodologies, appropriate use and limitations.
This report was commissioned by PhRMA, the Pharmaceutical Research and Manufacturers of
America. The report reflects the authors’ findings. Because extracts of this report taken in
isolation can be misleading, we ask that this report be distributed only in its entirety. The
American Academy of Actuaries requires its members to identify their credentials in
communications. Gabriela Dieguez, Bruce Pyenson, and Jennifer Carioto are members of the
American Academy of Actuaries and meet its qualifications to issue this communication.
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THE CHALLENGE OF FORECASTING SPECIALTY DRUGS: MANY DEFINITIONS AND
METHODOLOGIES
Several prominent Pharmacy Benefit Managers (PBMs) and healthcare analytics and services
companies provide reports on specialty drug costs and trends each year. However, their
methodologies and conclusions are often described without sufficient information to understand
and interpret their forecasts or to reconcile the results between organizations. In some cases,
their forecasting methodologies have changed over time, which makes it difficult to interpret
results over years, even for a single organization.
This report examines specialty forecast reports by four organizations (CVS, ESI, Prime, and
Artemetrx) and compares the results and methodologies across all sources. Prime, CVS and
ESI are PBMs, while Artemetrx is a data analytics / service company.
We identify three significant challenges when trying to compare forecasts among the four
reports:
1. Inconsistent definitions of specialty drugs,
2. Different definitions of costs, and
3. Differences in markets analyzed.
Inconsistent definition
There is no “industry standard” definition of specialty drugs and the term is not consistently
defined by health plans and PBMs. Specialty reports published by PBMs often do not clearly
state which drugs are included in their analyses, and it is unclear whether a particular company
uses the same definition from year to year or the effect of changes in the definition. Some
health plans1 define specialty drugs purely on the basis of cost; in the Medicare Part D program,
drugs can be considered specialty if they cost more than $600 per month. Other PBMs may use
multiple criteria in determining whether a drug is classified as a specialty product or not.
Figure 1 below summarizes characteristics commonly used to define specialty drugs, and how
these characteristics are used by the four reporting organizations. It is often unclear across
organizations whether drugs must meet all or some of these characteristics to be considered a
specialty drug. Likewise, we could not determine from the organizations’ reports whether the
absence of any of the characteristics below would prevent a drug from being labeled as
specialty.
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Figure 1 – Features included in the definition of “Specialty” drugs (1)
Prime
CVS
ESI
Injectable
√
√
Special Handling/Administration
√
√
Treats Rare, Chronic, or Complex
Conditions
√
√
High Unit Cost
√
√
Frequent Dosing Adjustments or
Intensive Clinical Monitoring
Intensive Patient Training & Compliance
Assistance
Limited/Specialty Pharmacy
(2)
Distribution
Specialty Tier
Biologicals
(3)
Artemetrx
√
√
√
√
√
√
√
√
√
√
(1)
Blanks are unknown.
(2)
CVS and ESI may have multiple lists of specialty drugs for different clients; however, this report focuses on the drugs included in
the specialty trend forecast.
(3)
Biotech drugs (also referred to as biologics) are produced using living organisms, often using genetic engineering of yeast or
bacteria. Projections related to the timing and extent of market entry for biosimilars are included in all of the specialty analyses.
CVS and Artemetrx provide little information on their specialty definition. CVS references their
universal specialty drug list. On the other hand, ESI and Prime provide more specific definitions.
Cost components included in trends
The four organizations that we studied calculate specialty trends using different components of
total drug spend.
Payers may cover specialty drugs under the pharmacy benefit or the medical benefit. Figure 2
below shows which of these benefits are included in the specialty trends for each drug trend
report. Including or excluding the drugs covered by the medical benefit will cause a significant
difference when comparing trends. For example, ESI and Prime report on drugs covered by the
pharmacy benefit only, so shifts in coverage between the medical and pharmacy benefit will
impact the reported trends, even if actual overall costs remains the same. On the other hand,
CVS and Artemetrx report trends for products covered under both medical and pharmacy
benefits. Because numerous infused and oncology products are covered under medical
benefits, trends reported by these organizations are likely to be different than those reported by
ESI and Prime.
The addition of categories of drugs as “specialty” that did not appear in earlier years can inflate
trends. For example, 2011 was the first year ESI included oral transplant and HIV medications
in their specialty category. Similarly, the Medicare Part D specialty threshold of $600 per 30day script has not been adjusted since it was first set in 2006, so this definition of the Part D
specialty tier includes a growing share of medicines each year.
ESI and Artemetrx exclude member cost sharing from their trend forecasts, and are calculated
on a net per member per year (PMPY) basis. CVS and Prime trends are calculated on an
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allowed per member per month (PMPM) basis before deducting member cost sharing. Prime
considers discounts, dispensing fees and taxes. Prime, CVS and ESI exclude rebates from
costs. CVS further excludes “subsidies” from their costs, although a definition of subsidies is not
provided. Artemetrx's report provides no information on how they handle rebates.
CVS’s reports state that their published trends assume that that no plan design or demographic
changes occur over the projection period. ESI’s net PMPY drug spend takes into account
changes in inflation, discounts, drug mix and member cost share. No additional information is
provided in Artemetrx’s analysis beyond the net plan basis information. Reporting on a net plan
cost basis captures how trends are impacted by benefit design changes.
Figure 2 – Summary of spending included in the specialty trend calculations (1)
Component of Cost
Drugs Covered by Pharmacy Benefits
Prime
CVS
ESI
Artemetrx
√
√
√
√
(2)
√
Drugs Covered by Medical Benefits
(3)
Other Drug Exclusions
Gross Allowed Costs before Cost
Sharing
√
√
√
√
√
√
Net Plan Costs after Cost Sharing
√
Pharmaceutical Company Sales
Rebates
Discounts
√
Dispensing Fees
√
Taxes
√
√
(1)
Blanks are unknown or not relevant.
(2)
Prime’s 2013 trend report includes a section on combined (pharmacy and medical) drug spending for year 2012, although no
trends for the products covered under the medical benefit are provided.
(3)
Artemetrx’s analysis excludes HIV and transplant spending from trends. Prime excludes anti-nausea and immunosuppressant
drugs.
Markets and populations included in specialty trend estimates
The type of markets and the relative population sizes within each market served by each PBM
also impacts the type of formularies included in the forecast. These markets include Commercial
(employers, union-sponsored benefit plans, and insurers serving the non-Medicare, nonMedicaid population), Medicare, and Medicaid. In addition, the type of clients served by the
PBMs, which form the basis of their analyses, may impact their trend calculations. For example,
Prime is linked to several Blue Cross and Blue Shield plans.
Figure 3 further identifies the markets and books of business for each of the reports we
analyzed.
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Figure 3 – Summary of spending included in the trend calculations (1)
Component
Prime
CVS
Commercial
√
√
Medicare
√
Medicaid
√
√
Own book of Business
√
ESI
(3)
Artemetrx
√
√
√
(2)
√
Total U.S. Market
(1)
Blanks are unknown or not relevant.
Artemetrx uses vendor and market reports with adjustments to represent national trends.
In older ESI drug trend reports, trends were reported for their Commercial book only. Therefore, we analyzed Commercial only
trends in this report. Beginning with ESI’s 2010 drug trend report, ESI added separate trends for their Medicare and Medicaid lines
of business.
(2)
(3)
Trend results can vary greatly depending on the range of plans and specifically, the mix of Part
D plans or state Medicaid programs with which each organization works. In the commercial
market, large group plans tend to have customized formularies, while small groups and
individuals use standardized formularies. On the other hand, federal and state regulations apply
more restrictions to Medicare and Medicaid formularies. Formularies can vary widely between
Part D plans, while Medicaid regulations vary by state.
FORECASTS VARY AMONG ORGANIZATIONS AND BETWEEN REPORTS
We analyzed several years of reports to identify variation within each of the four specialty trend
reports we examined (see below, and in Figures 5A and 5B).
Figure 4 below compares forecasted specialty trends reported by Prime, CVS, ESI and
Artemetrx. ESI is the only PBM that forecasts increasing specialty trends after 2014.
Figure 4 - U.S. Annual Forecast Specialty Spending Growth (2013-2016)2, 3, 4, 5
2013
2014
2015
2016
Prime
17.0%-19.0%
17.0%-19.0%
17.0%-19.0%
NA
CVS
15.0%-26.0%
17.0%-28.0%
16.0%-26.0%
15.0%-25.0%
(1)
ESI
14.1%
16.8%
18.0%
18.2%
Artemetrx
20.0%
22.0%
21.0%
19.0%
(1)
Express Scripts 2013 specialty trend is actual and not forecasted.
As discussed earlier, some of the major methodological differences in the development of these
trends include:
·
·
·
ESI and Prime exclude medical benefit drugs from their trends.
Prime, CVS and ESI trends are calculated based on their own books of business.
Prime’s book of business heavily reflects the experience associated with several Blue
Cross Blue Shield plans, while CVS and ESI serve many insurers and employers.
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·
ESI and Artemetrx report trends for net plan drug spend (after patient cost-sharing)
while Prime and CVS use allowed drug spend (before patient cost sharing). Prime and
Artemetrx report trends for the Commercial market only.
A look at historical forecasts
We also examined the reports by CVS and ESI going back several years. Figures 5A and 5B
display a comparison of each PBM’s forecast trends to what the PBM reported as “actual”
several years later. The tables show past and current trend forecasts for each target year, at
different points in time before the target (index year), as reported for CVS and ESI. We found
that both CVS and ESI’s reported actual (or restated) trends were generally lower than each
PBM’s forecast for each target year.
Figure 5A: Forecasted specialty spending growth compared to actual spending growth, CVS
Index
Year
Actual
Growth
1 year prior
Difference
Mid forecast
(mid forecast
(Low – High)
vs actual)
2 years prior
Mid forecast
Difference
(mid forecast
(Low – High
vs actual)
2008
13.5%
22%
(17% - 27%)
+8.5%
-
2009
11.0%
17%
(12% - 22%)
+6.0%
2010
13.7%
17%
(12% - 22%)
2011
17.2%
2012
2013
4, 6, 7, 8, 9, 10
3 years prior
Mid forecast
(Low – High
Difference
(mid forecast
vs actual)
-
-
-
22%
(17% - 27%)
+11.0%
-
-
+3.3%
19%
(14% - 24%)
+5.3%
-
-
20%
(15% - 25%)
+2.8%
19%
(14% - 24%)
+1.8%
-
-
18.3%
17%
(12% - 22%)
-1.3%
17%
(12% - 22%)
-1.3%
19%
(14% - 24%)
+0.7%
n/a
20.5%
(15% - 26%)
-
17%
(12% - 22%)
-
17%
(12% - 22%)
-
Figure 5B: Forecasted specialty spending growth compared to actual spending growth, Express Scripts
5,
11, 12, 13, 14
1 year prior
2 years prior
Index
Year
Actual
Growth
Forecast
Difference
(forecast vs
actual)
2010
19.6%
20.5%
+0.9
2011
17.1%
26.5%
+9.4
2012
18.4%
17.1%
-1.3
2013
14.1%
17.8%
+3.7
3 years prior
Difference
(forecast vs
actual)
Forecast
Difference
(forecast vs
actual)
-
-
-
-
23.5%
+6.4
-
-
26.9%
+8.5
23.3%
+4.9
19.0%
+4.9
27.5%
+13.4
Forecast
In two of the five years analyzed, CVS’s forecast lower bound one year prior to the target year
was higher than their actual reported trend. In two other years, CVS’s midpoint forecast was
higher than their actual reported trend. In particular, the midpoint of CVS’s forecast trends one
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year prior to the target year were on average four percentage points higher than actual trends.
However, it appears that forecasts made one year in advance have gotten closer to their
reported actual consistently since 2008.
ESI’s two- and three-year forecasts are also consistently higher than their actual reported
trends. In addition, ESI’s forecast just one year before the target year was higher than actual in
three of the four years analyzed. ESI forecast trends one year before the target year were, on
average, 3.2 percentage points higher than actual.
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LIMITATIONS
For the reports analyzed, we used the sources identified in References. Later versions of these
reports may be available, but we did not attempt to use updates. Our results and conclusions
could change if we used additional or updated information.
Milliman does not intend to benefit any third party through this memorandum; it reflects the
findings of the authors.
Our analysis of the cited, publicly available reports does not apply to any other work the
sponsors may have produced. In particular, the sponsors of each of the reports we examined
may provide analyses to their customers that more completely treats the issues we address.
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REFERENCES
1
th
EMD Serono Specialty Digest, 7 Edition: Managed Care Strategies for Specialty Pharmaceuticals.
Available at: http://amcp.org/WorkArea/DownloadAsset.aspx?id=10385. Accessed March 11, 2014.
2
Artemetrx 2013 Specialty Drug Across the Pharmacy and Medical Benefit. Available at:
http://www.artemetrx.com/resources/reports.aspx. Accessed on March 11, 2014.
3
Prime Therapeutics 2013 Specialty Drug Trend Insights. Available at:
https://www.primetherapeutics.com/PDF/specialtydtr2013/index.html. Accessed on March 11, 2014.
4
CVS Caremark Insights 2013. Available at: http://cvscaremarkfyi.com/insights2013/. Accessed on
March 11, 2014.
5
Express Scripts 2013 Drug Trend Report. Available at:
http://lab.express-scripts.com/drug-trend-report. Accessed on November 18, 2014.
6
CVS Caremark Insights 2012. http://www.amcp.org/WorkArea/DownloadAsset.aspx?id=16204.
Available at: Accessed on March 11, 2014.
7
CVS Caremark Insights 2011. http://amcp.org/WorkArea/DownloadAsset.aspx?id=10384. Available at:
Accessed on March 11, 2014.
8
CVS Caremark Insights 2010.
https://www.caremark.com/portal/asset/CVSCaremark_Insights_2010.pdf. Available at: Accessed on
March 11, 2014.
9
CVS Caremark TrendsRx Report 2009.
http://www.amcp.org/WorkArea/DownloadAsset.aspx?id=12752. Available at: Accessed on March 11,
2014.
10
CVS Caremark TrendsRx Report 2008. http://www.caremark.com/portal/asset/TrendsRx2008.pdf.
Available at: Accessed on March 11, 2014.
11
Express Scripts 2012 Drug Trend Report. Available at: http://www.rxobserver.com/wpcontent/uploads/2013/03/ExpressScripts_DTR_0320.pdf. Accessed on March 11, 2014.
12
Express Scripts 2011 Drug Trend Report. Available at:
http://www.amcp.org/WorkArea/DownloadAsset.aspx?id=15230. Accessed on March 11, 2014.
13
Express Scripts 2010 Drug Trend Report. Available at: https://www.expressscripts.com/research/research/dtr/archive/2010/dtrFinal.pdf. Accessed on March 11, 2014.
14
Express Scripts 2009 Drug Trend Report. Available at:
http://lab.expressscripts.com/~/media/previous%20reports%20pdfs/drug%20trend%20report%202009.ashx. Accessed on
March 11, 2014.
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