Health Expenditures Expected to Rise to $6 Trillion by 2027

Monday, March 4, 2019

Marsha K. Millonig, MBA, BPharm

The Center for Medicare and Medicaid Services (CMS) Office of the Actuary released its national health expenditure projections on February 20. The office projects national health expenditures to reach $6 trillion in the next 8 years, at an average rate similar to 2018, or 5.5 percent annually.

Should the projection hold true, health expenses would reach 19.4 percent of Gross Domestic Product (GDP), up from 17.9 percent in 2017. The percent of the population that is enrolled with health insurance is expected to remain very stable at 89.7 percent, compared to 90.9 percent in 2017.

What Accounts for the Increase?

The move of Baby Boomers into Medicare and an increase in medical goods and services prices are key factors in the estimate.

The government share of healthcare spending will approach almost half of all spending (47 percent). Medicare growth (7.4 percent) is predicted to rise faster than Medicaid (5.5. percent) and private health insurance (4.8 percent). This is primarily due to the increase in the number of aging Baby Boomers entering Medicare. The Medicaid numbers also reflect several state expansions this year (ME, NE, UT, VA). While, the reduction in private health insurance reflects the move of Baby Boomers out of these programs. For patients, the out-of-pocket spending in private plans is anticipated to grow at the same 4.8 percent rate, reaching 9.8 percent of total spending, compared to 10.5 percent today.

The growth in hospital and physician/clinical services spending is about the same – 5.6 and 5.4 percent, respectively.

The Office is projecting accelerated spending growth for prescription drugs due to greater use during the next decade. It notes efforts related to improving patient medication adherence for those with chronic diseases, changing clinical guidelines and FDA approval of more innovative drugs. Given the robust pipeline and the trend in increasing drug approvals, this projection is likely spot on.

New Drug Approvals

The FDA has already approved three novel therapies in 2019:

  • Jeuvea (prabotulinumtoxinA-xvfs) on February 1 for the temporary improvement in the appearance of moderate to severe glabellar lines associated with corrugator and/or procerus muscle activity in adult patients
  • Cablivi (caplacizumab-yhdp) on February 6 to treat adult patients with acquired thrombotic thrombocytopenic purpura (aTTP)
  • Egaten (triclabendazole) on February 13 to treat fascioliasis, a parasitic infestation caused by two species of flatworms or trematodes that mainly the affect the liver, sometimes referred to as “liver flukes”

In 2018, the FDA’s Center for Drug Evaluation and Research (CDER) approved a record 56 new molecular entities. That number was nearly double the center’s 10-year average of 33 approvals per year. Center Director Janet Woodcock writes in the 2018 CDER Annual Report that “new drug therapy approvals helped a wide range of patients suffering from many different medical conditions gain new hope for improved quality of life, and in some cases, improved chances of surviving life-threatening illnesses.”

The trend continued with many of the newly approved products receiving one or more expedited development or review pathway designations:

  • Orphan Designation: 34 (58%)
  • Fast Track Designation: 24 (41%)
  • Breakthrough Therapy Designation: 14 (24%)
  • Priority Review: 43 (73%)
  • Accelerated Approval: 4 (7%)
  • First-Cycle Approval: 56 (95%)
  • First Approved in U.S.: 42 (71%)

Rare diseases that had products approved to treat them included rickets, Fabry disease, and phenylketonuria. The first drug to treat smallpox was approved, as was the first in a new class of drugs for HIV-1 infected patients who have stopped responding to other therapy. Other drugs were approved to treat neurological disorders, including migraine; cardiovascular disease; women’s health and cancer; and blood disorders. The report also calls out the first non-opioid drug approved to help reduce symptoms of opioid withdrawal, Lucemyra (lofexidine hydrochloride.)

The Agency approved seven new biosimilars in 2018, bring the total to 16:

  • Fulphila (pegfigrastim-jmdb)
  • Udenyca (pegfilgrastim-cbqv)
  • Herzuma (trastuzubam-abtr)
  • Hyrimoz (adalimumab-adaz)
  • Nivestym (filgrastim-aafi)
  • Retacrrit (epoetin alfa-epbx)
  • Truxima (rituximab-abbs)

In summarizing the year, CDER notes, “More important than the quantity of the new therapies is their medical value and the important new roles these drugs are serving to advance patient care … this report serves to provide a wide variety of valuable examples of the many ways CDER approves new drug therapies to enhance patient health.”

As innovation continues, no doubt significant attention to reforming the way drugs are paid for within healthcare will continue, with moves towards greater transparency and potential reform to the rebate system. The Trump administration continues its efforts outlined in its 2018 blueprint for lowering drug pricing, and Prescription Drug Benefit manager reform is spreading across states. More to come on that in an upcoming blog.

For more detail, access the complete Office of the Actuary’s report.

Marsha K. Millonig, MBA, BPharm, is president and CEO of Catalyst Enterprises, LLC, and an Associate Fellow at the University of Minnesota College of Pharmacy’s Center for Leading Healthcare Change.

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