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Blog & News

Session 3: A Look at PwC Health Research Institute’s 2020 Medical Cost Trend Report

Medical Cost Trend: Behind the numbers 2020


PwC Health Research Institute (HRI)

Condensed and presented by Advanced Plan for Health

The Advanced Plan for Health team regularly scans the health market for trends, analysis and insight. In our research, we found The PwC HRI Medical Cost Trend: Behind the Numbers 2020 report to be full of valuable healthcare market information and thought our readers would benefit from the report findings. We decided to condense and present the PwC HRI report in a bi-weekly blog series to highlight what we found to be most pertinent to our readers and to better understand factors that could potentially affect the 2020 medical cost trend. Below is Session 3 of 11 sessions, per the PwC Health Research Institute (HRI) report.

Session #3: The Inflators impacting the 2020 medical cost trend

1. Summary of situation:

  • Retail prescription drug spending growth for private health insurance peaked in 2014 and 2015 due in large part to the hepatitis C treatments (~$75K – $90K for 90 pills) entering the market,
  • Then fell to negative 3 percent in 2017 as the market rebounded from the impact of those treatments and leveled out in 2018 and 2019 (see Figure 4).
  • Starting in 2020, retail prescription drug spending growth for private health insurance will begin to increase, hitting between 3%t and 6% annually through 2027.(24)
  • The growth in spending can be attributed to the waning impact of generics on the market and the introduction of new drugs— primarily specialty drugs with higher price tags.(25)

2. Generic drug marketplace

  • Definition – generic drugs are copies of brand-name drugs that have exactly the same dosage, intended use, effects, side effects, route of administration, risks, safety, and strength as the original drug. The FDA (U.S. Food and Drug Administration) requires that generic drugs be as safe and effective as brand-name drugs.
  • Generics will not affect 46% of the estimated sales revenue of the top 100 drugs through 2023.(26)
  • There will be less opportunity for generics to dampen drug spending as the value of branded drugs coming off patent exclusivity decreases from 2018 through 2020.(27)
  • Employer-based generic utilization rates hovering around 86% also means there is little room to grow.(28)
  • Lastly, not all drugs coming off patent exclusivity will be eligible for traditional generic competition because many are biologics that will require biosimilar, not generic, competition.(29)

3. Biologic drug marketplace

  • Biologics – a biologic drug is a product that is produced from living organisms or contain components of living organisms. Biologics include recombinant proteins, tissues, genes, allergens, cells, blood components, blood, and vaccines. Biologics are used to treat numerous disease and conditions, for example: anemia.
  • Biosimilars – a biosimilar is a biological product that is very similar to a reference biologic and for which there are no clinically meaningful differences in terms of safety, purity, and potency. However, a biosimilar is not considered a “generic” in the same way that a traditional drug is determined to be a generic.
  • Biologics are a significant driver of drug spending.(30) There are 20 FDA-approved biosimilars but only seven are actively marketed in the U.S. as of 2019.(32) In contrast, the European Union has 54 authorized biosimilars.(33)

4. Specialty drug marketplace

  • Specialty drugs, which include biologics, constitute an increasing share of retail drug spending, currently 42%.
  • According to an HRI analysis of the OptumRx brand pipeline forecast from the first quarter of 2019, of the almost 300 drugs to be launched between 2019 and 2021, nearly two-thirds are specialty drugs.(37)
  • Most of these specialty drugs will be high cost but also high impact—many of them being curative or life-saving treatments that could reduce employer costs over the long term.
  • CVS Health estimates that by 2020, specialty drugs will account for 55 percent of US drug spending, including both retail drug spending and spending on administered drugs covered under the medical benefit, such as infusions or intravenous injections.(38)

5. Governmental oversight

  • Regulators and lawmakers have proposed policy changes to address drug pricing and a perceived lack of transparency in the drug supply chain. Many of these proposals focus on Medicare Parts B and D drug spending.(45)
  • While some of these proposals could affect how PBMs, health plans and employers’ approach commercial large group drug spending, it is too soon to tell the potential impact on 2020

With all that is stated in this recap concerning the medical cost trend, each employer needs access to data that will allow them to determine the unique inflators and deflators that are driving their cost trend. In turn this will enable the development of strategies that provide a path to intervene at the point of risk and mitigate its impact, e.g. benefit design considerations, care management effectiveness, and others. To learn more about this research, feel free to contact us here.

PwC HRI Sources

(24) PwC Health Research Institute analysis of CMS national health expenditure data for private health insurance, projected data 2020-27.

(25) Andrea M. Sisko, Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Sheila D. Smith, et al., “National Health Expenditure Projections, 2018-27: Economic and demographic trends drive spending and enrollment growth.”

(26) PwC Health Research Institute, “Is new generic competition enough to lower drug costs?” June 2018, https://www.

(27) PwC Health Research Institute, “Is new generic competition enough to lower drug costs?”

(28) PwC Health Research Institute analysis of Health Care Cost Institute 2017 data, research/annual-reports/entry/2017-health-care-cost-and-utilization-report.

(29) PwC Health Research Institute, “Is new generic competition enough to lower drug costs?”

(30) Avik Roy, “Biologic medicines: The biggest driver of rising drug prices,” Forbes, Mar. 8, 2019, https://www.forbes. com/sites/theapothecary/2019/03/08/biologic-medicines-the-biggest-driver-of-rising-drug-prices/#4583af7218b0.

(32) U.S. Food & Drug Administration, “Biosimilar product information,” accessed June 13, 2019, https://www. therapeuticbiologicapplications/biosimilars/ucm580432.htm; Biosimilars Review & Report, “Biosimilar Approval Status,” accessed June 13, 2019,

(33) PwC Health Research Institute analysis of European Medicines Agency biosimilar authorizations, accessed June 7, 2019,

(37) PwC Health Research Institute analysis of OptumRx first quarter 2019 brand pipeline forecast, https://cdn-aem.

(38) CVS Health, “The evolution of specialty management,” Jan. 10, 2017, default/files/cvs-health-payor-solutions-insights-feature-the-evolution-of-specialty-management-january-2017.pdf.

(45) PwC Health Research Institute, “CMS considers foreign drug prices to hold down Medicare Part B spending,” January 2019,; PwC Health Research Institute, “HHS proposes major shift to protections for Part D and Medicaid MCO drug rebates,” Feb. 8, 2019,


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