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Study: Drug utilization costs health industry $93B a year, with patients bearing most of the cost

Drug utilization management such as prior authorization and stricter formularies cost the healthcare industry $93 billion annually, with patients bearing the largest share of the cost, a new study found.

The study, published Monday in the journal Health Affairs, found that intense use of drug utilization measures has led to patients spending $35.8 billion a year in cost-sharing.

“All stakeholders in the U.S. pharmaceutical system would benefit from a de-escalation of utilization management, combining lower drug prices with lower barriers of patient access,” the study said.

It found that last year the three largest pharmacy benefit managers excluded 846 drugs from their formularies compared to 109 in 2014, and “one-third of large commercial payers now impose access restrictions on specialty drugs.”

Researchers estimate payers spend $6 billion a year to administer drug prior authorizations based on the number of rejected requests per year and the average cost per rejected claim for manually and electronically submitted requests.

“We did not include spending by payers on prior authorization requests that were accepted on the first pass, as this could not be measured and was assumed to be small,” the study said.

The study also predicts that drugmakers spend nearly $25 billion annually on administrative support programs such as direct financial support and donations.

Drugmakers spent the most on direct patient financial support such as copay cards, spending between $13 billion and $15 billion in 2018.

Physicians also spent $26.7 billion a year interacting with payers, especially regarding prior authorization requests.

The time and labor spent by physicians handling such requests represent a conservative estimate, since researchers couldn’t fully quantify the loss of physician practice revenue because of “an inability to collect required copays from patients for visits devoted to discussing prescription rejections and cost-sharing.”

The study comes as physicians have steadily complained about the administrative burden of prior authorization requests, which have increased in regularity over the past several years.

But patients bore the most cost out of everyone in healthcare, shouldering an estimated $35.8 billion in annual patient cost-sharing attributed to utilization management.

Overall, copays, deductibles and coinsurance have gone up from $74 billion in 2015 to $82 billion in 2019, the study said.

The cost represents what people must spend after copays and other financial support are considered.

“Most patients receive generic drugs, which carry only a modest copay (often in tier 1 of their formulary) that is not designed to influence a patient to choose a different, cheaper drug,” the study said. “In contrast, copays and coinsurance in higher formulary tiers apply to branded agents and specialty drugs and are intended to influence their use.”

Drug utilization management can create “prescription abandonment and treatment delays for patients, potentially affecting health outcomes,” the study said. “Approximately 20% of prescriptions in the U.S. are never filled.”

Researchers also believe the $35.8 billion figure is conservative since it doesn’t consider the health effects of the utilization management strategies.


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