AH071 - A Look at What's Really Driving Drug Spend, and How it Impacts Us, with IQVIA's Michael Kleinrock

Transcript

Lightly edited for clarity.‍

[00:27] Justin Venneri: Hello, and thank you for listening to Astonishing Healthcare. This is Justin Venneri, Senior Director of Communications at Capital Rx, and your host. And I'm excited to have Michael Kleinrock in the studio with me today from IQVIA. He's the lead researcher at their Institute for Human Data Science. So I'm always on the lookout for your annual Use of Medicines report. It's awesome that you're here to talk about a 2025 update, which came out April 30th. So thanks, Michael, so much for taking the time today.

[00:50] Michael Kleinrock: Hey, thanks for having me. Glad to be here. Should be fun.

[00:52] Justin Venneri: So you were telling me about how you brought sort of an investigative journalism approach to IQVIA. Can you spend a minute or two on your path to IQVA and your role there currently?

[01:02] Michael Kleinrock: It's funny, I mean, as a health researcher, you would expect I had come from a scientific or a medical background of some description, pharmacy or something. But I had been a radio DJ between college and my master's, and then I started doing a master's in radio production and journalism. And I found with some of my internships a really some excitement for essentially booking interviews for a radio station, news radio station to do topics, you know, then I grew up and got jobs and over time I had sort of migrated and gravitated to IMS Health, which was then merged and became IQVIA, where I am now. One of the things in our, what was our thought leadership or market insights, or which is now the Institute group, is that we are doing research and trying to tell stories.

And when you're trying to pull together strands from, from all sorts of data and for multiple stakeholders to really explain things, the investigative journalism lens is really important. And it's also important because I, you know, I want to have good pickup for our reports. So I speak to journalists a lot and so being able to position things in the way that they want to hear them is something that, you know, makes your stories get picked up. So it's coincidence for some reasons, but it, you know, maybe it makes me good at it. I'm not sure. We try to be modest once in a while.

[02:13] Justin Venneri: I mean they’re industry standard. So yeah, it's good stuff. Maybe let's start off higher level and we can talk about trend a little bit. Big picture. I'd love to kick the range around with you or some forecasts, correct me if I'm wrong but I think last year, generally speaking, 9-11% inflation seems like where everyone landed. And this is for pharmacy spend or overall drug spend for health plans, employer-sponsored plans. And then this year it seems like everyone's expecting at least 8% trend.

Talk to me a little bit about what you see, big picture.

[02:45] Michael Kleinrock: So you know, the, the, the US spending on, on medicines is something that, you know, a lot of times we, we split by what type of payment we're doing. So we talk about pharmacy versus medical. We do a lot of our work at the total and you know, a lot of the choices that one makes in seeking healthcare don't really, you know, like I'm not choosing, oh I'm going to have a medical benefit, you know, your sickness kind of dictates.

But in terms of pharmacy benefit, even within that you have a split. The split is between people who have some large population, chronic diseases largely treated by generic drugs, traditional drugs that are very cheap. So that's the volume driver, that's your stable underlying principle. And in many ways the, the amount spent and the co pays on those drugs have been flat to declining for some time.

[03:30] Justin Venneri: Right.

[03:30] Michael Kleinrock: And so you know, most people, and this is a sort of a, a disconnect with what you think about or when you see media coverage on drugs is that most people are spending less than $10 on prescriptions and most people don't have concurrent medications. Most people are actually healthy. But psychology is an important part of perception.

So what's driving the trend are a small group of novel medicines that are more often specialty, niche and orphan. Specialty drugs generally have about 2 to 3% of the volume but more than 50% at the spend. So you know, if you're a smaller plan, if you're a smaller, you know, self-insured company, and you're unlucky enough to have a few employees, need something that costs $300,000 a year that can change the economics of your plan kind of overnight. And over the past decade we've seen a lot of discussion about budget busters in Hepatitis C and focus on cell and gene therapies with million-dollar price tags. Generally high price means low volume.

Low volume doesn't help if you are concentrated in a small employer that is covering that cost. That's really the central aspect of this. So what's driving cost? It's really good drugs being used more, and there are really Good drugs being used a lot more. And that's translating into, you know, our total drug spend on a net basis for the manufacturer revenue grew 11.4% in 2020, 24. That's up from about 5% the prior year. And again, this is a lot…

[04:54] Justin Venneri: And the total, the total's $1 trillion?

[04:56] Michael Kleinrock: The list price is now over a trillion. The net for manufacturers is $487 [billion]. So that's amazing. Basically, you know, price in the US is a function of who you are, it's not who you know. And what's happening is that the list price, which, if you have a high deductible health plan or you are in a deductible phase, the list price influences a lot of what you pay. And those numbers are really high for some medicines. But, you know, a lot of people have fixed co pays, preferred brand copays are $35 a drug, which list price is reported in the media at $800 or $1,500.

If your plan is the fixed copay kind, that flavor, you're spending 35 bucks. If it's a preferred brand, you're spending 75 or something. If it's not, if you have a high deductible plan, which 30-40% of people do, and a lot of people have deductibles, even if they don't have that full exposure, then you're paying the deductible price. And so it's a big number. If you're unlucky enough to have a family member who's very sick, you plow through deductibles and out-of-pocket and things get free. Who you are, what your personal circumstance is influences a lot of your experience of cost.

But from a plan perspective, it's as if everybody is just costing more money because these drugs are more expensive.

[06:03] Justin Venneri: Got it. So let's dive into the report a little bit. What do you see as the key highlights of this year's use of medicines report that are more important for plan sponsors and benefits brokers or consultants to consider?

[06:16] Michael Kleinrock: Probably my first one is a boring volume-driven question. For the last five years, I've had to start every report with an explanation of how COVID is impacting us. And this year I didn't have to.

[06:27] Justin Venneri: Yeah, exciting, right? We've moved on. We haven't moved completely on, but we've moved on.

[06:31] Michael Kleinrock: We were thrilled. There's still lingering effects here. So we're still seeing a malaise, I would call it, where engagement with healthcare is less than the previous trend we see, you can't find a primary care doctor. Many more people are having to see a nurse practitioner in their practice more often than they see the doctor. I mean, that's just a feature of it. And some people are just not seeking care. If you stretch that out, you get into your mid-40s and you start getting into that age where you should be seeing the doctor more often and you don't, it poses a risk in terms of catching some of these sort of downward spiral issues.

Earlier and early in the pandemic we had spoken about “cancer won’t wait” as a sort of title for a bunch of our reports because we were very concerned about diagnostics and that were not being done as often and that patients would, would turn up more metastatic than they otherwise would have with obviously therefore worse outcomes. And so we were very concerned. That has softened to a degree, but we're still at a sort of an okay level of usage. That's kind of one point. And then underlying that are the specialty growth drivers in immunology, obesity drugs, the GLP1s for diabetes, obesity related mosaic of indications that they're used for.

That's one of the bigger drivers overall, and we have some concern about antibacterial use. There's an issue about antimicrobial resistance that we have to make sure to reserve broad spectrum antibiotics for things that need them. That's something that's more of my global public health hat that I'm wearing with that one. The opioid epidemic. So opioid overdoses were down, I think 29% in one year. And we are back at the 1999 level in terms of per capita use of prescription opioids. So there's progress being made there. And I think a lot of that can be pointed to the over-the-counter naloxone and how affected people are able to avoid death, which is pretty good.

Aside from that, oncology and particularly, you know, we're seeing oncology used to be chemotherapy with maybe some targeted agents added on. But generally, you have backbone therapies, older chemo agents which are toxic and you have side effects. And increasingly we're seeing many tumors. Moving to a more modern regimen that reduces chemo and is really extending and moving novel agents into first line increasingly, which is really positive.

And then I have to sandwich this again with concern is that overall level of vaccinations, both adult and pediatric and you know, and seasonal, but you know, adult vaccinations for shingles, children for measles and so on are down and that's it's in our volume and we're concerned that that means preventable disease is not being addressed. Aside from that, I got a bunch of other exciting aspects of where we're seeing usage shifts to things, which have significant benefits. And obviously, that translates into dollars. So there are trade-offs. But if the dollar's trend goes up, “What are you getting for it?” is, I think the trade-off question for your audience.

[09:17] Justin Venneri: So what are some of the more exciting ones in your mind or what would you go a layer deeper in the data and give us a unique observation that a plan sponsor might get excited about?

[09:27] Michael Kleinrock: We break this apart in one of our charts. But basically, if I think about dollar spend, $487 billion is up $50 billion from the prior year. You know, a lot of growth.

And that was made up of $50 billion of growth from 31 drugs, all who grew more than half a billion [dollars] each. And then there's another group that grew a little more slowly and slow.And then there's losses from patent expiries, and then there's 3,000 drugs that didn't grow at all. That's our older stuff.

But if we look at our 31 drugs with, with all the growth, you've got your GLP1s, that's 29% of it. You've got label expansion. So these are drugs getting new approved uses that already had them, and they are significant - that's another 24%. We're basically over half now with just that. And that was 10 drugs. So we're basically talking about 14 drugs driving, you know, $25 billion of increase. So it's very concentrated.

[10:15] Justin Venneri: Interesting.

[10:15] Michael Kleinrock: Okay, then COVID has a little bit of a funny impact because we had it switch from government emergency use to commercial last year and that had a bunch of returns. So the financials basically meant that there was only part of the year responsible in the commercial market. And then we have a big jump back up to normal with 2023 for having the full year in the commercial market. And then when we add to that, things that actually move, I call them established in clinical guidelines.

But just basically imagine that something is now recommended in the guideline as opposed to being promoted by the innovator for its use. It's this is what you should do. So things being in the guideline is a big driver of growth and particularly I notice it when they're new because things get established in guidelines kind of old eight, 10 years after their launch. Eventually, they become the standard to get there in the early part of life is a pretty big deal. And then if we think further about things like a next generation drug getting adoption while the previous generation goes off patent in the US market, when something goes off patent and it's a good drug, the system has a choice to make. Is that off-patent drug good enough to keep using and capture that savings, or is the next-generation drug better enough that we're going to make the switch, even though there's this option?

And particularly what I'm talking about here is immunology, and I'm talking about Humira.

[11:34] Justin Venneri: Okay, I was going to ask if this is biosimilars.

[11:36] Michael Kleinrock: So do you, do you switch away from Humira to a newer drug for psoriasis or Crohn's or ulcerative colitis or something? Or do you stay with Humira and get the savings? And we're seeing one of our growth contributors is people is switching to the newer drugs. So there's a choice there being made.

How about broader access through benefit design? So this is where we're talking about some of the things in the Inflation Reduction act that cap patient out of pocket cost can mean some patients are now finding affordability in medicines they previously would have abandoned. And that's affected a couple of drugs. And we've had some that used to be predominantly patient assistance shifting to be insurance covered that are generating net revenue growth for the manufacturer as a result of that.

[12:15] Justin Venneri: I'll link several reports in the show notes for reference. And I think you had a proliferation of Innovation Report and payer implications that kind of was explaining some of your institute's take on how the Inflation Reduction Act and other legislation related to drug prices could impact the market. Can you share a little bit about that, please?  

Additional Reference Materials

• Assessing the Biosimilar Void in the U.S.
• Proliferation of Innovation Over Time

(Visit IQVIA Institute Reports & Publications for more!)

[12:33] Michael Kleinrock: Sure. I mean, and actually, we republished one of the charts in this US Review. So the Inflation Reduction Act’s price negotiation feature is the key element here. And what it does is sort of sets a time when you're eligible for negotiation with some exemptions, but sets it at 9 years for small molecule and 13 for biologic.

But it sets it from the first availability. And what we wanted to do with that Proliferation of Innovation report was understand what additional approved uses medicines get and when in their lifetime. And what we find is that only about a third of the approved uses of medicines happen in the first year. And so the other two thirds of their later approved uses are happening as time passes.

Well, how long after the initial launch do those uses need to be approved, generate usage, reward the innovator enough for them to see the value in having done the research and got the approval? So we were thinking, well, if you get the approval five years into the drug's life, then you have four years to make your money back on that indication, and hopefully that'll pay back your clinical trials and be worth it. So how far do we get by five years in a small molecule? And basically, we get another 10% or 15%.

So when we're looking at this, basically what we're saying is that there's going to be a gap. There's going to be a situation where approvals that are happening at 9, 10, 11, 12, 13 years after the original launch might not be researched in the future. And some of those are of important value, often for smaller populations. In some cases you could say, well, providers probably have figured that out and they'll do that. But that's essentially experimenting on the patient rather than having a clinical trial and an approval. So you're looking at things like a rare orphan indication for an established drug, you know, getting approved at 10 years after launching, what happens there. So we definitely see a significant part of that. The question is, what value do you lose?

And the observation we've had is that the legislation was written and passed and is the law without respect to that loss. And we will only find out once we don't see the innovation happening. So we just have to watch and we have to see if investment priorities shift. And certainly that's a concern where in policy terms, if you see, say, Orphan Drug Act preventions or incentives start to be removed or exemptions from price negotiation are contracted.  

People think of an orphan drug, and I've done a bunch of research on orphan drugs before. A drug is not a single indication oftentimes. And actually, there's a large number of orphan drugs that have multiple approved uses. The original legislation only exempted a single approved use orphan drug from price negotiation. But if you are a drug which is widely usable across a bunch of things like rare neurological conditions, you might find yourself not having a lot of revenue because all of them are rare but subject to price negotiation. And that was something. There was an executive order to change that to give multiple - so, there's five orphan indications is still exempt to exempt them from the price negotiation. That is part of the current version of the Senate bill to remove that. So there's just a lot of concern about what counts as the areas of research.

And I think a lot of people just didn't know when we wrote that report. I think it was surprising that medicines have multiple approved uses that that grows over time, that most drugs are not for one thing. And that's why we did it. Because I think if you don't have that piece of information in your mix, you can't do the mental math on what that means.

[15:48] Justin Venneri: That's a really interesting point. GLP-1s are a great example and they're probably the most public example where there's an expanded indication and then the FDA approves one of the GLP-1s for A) weight loss, B) for cardiovascular events, prevention of cardiovascular events, and sleep apnea, et cetera. So now you have this very public example of how expanded labels can impact the market.

[16:13] Michael Kleinrock: And you know, recognize that, you know, so it's a mechanism. The mechanism is changing calorie consumption effectively. So it has an effect across this range of diseases. The mosaic of all of the approved indications ends up being a strategy. Because the strategy is then, well, if the insurer will not cover me for weight loss, maybe they'll cover for cardiovascular risk prevention. Weight loss is illegal to cover for Medicare, but cardiovascular risk prevention is not. Sleep apnea is generally triggered by weight gain. So weight loss will fix sleep apnea.

It doesn't fix sleep apnea, the drug, it lowers your weight. But if you can now collect a set of trading cards of indications that mean that you are a problem enough now, the insurance will cover you. And so there's ultimately this question of how sick do you need to be to get access to this medicine? And seems to be a sensitive topic to figure out what the rules are again, because if you are very transparent about what would translate into coverage, probably the fear is that the system will be gamed and the number of people who will turn up wanting coverage for those medicines will be astonishing and the impact on spend would be large.

We did a forecast, we have a really big range on it in terms of our expectations of the, of the impact. It really depends on a lot of things. And you know, people typically start with the 42% of US population adults who are obese and think, you know, well, that's a lot of people. The reality is most of those people are not obese enough to self-select for these therapies. There's price sensitivity built into it, there's other comorbidities. So you're knocking off who's going to present themselves. And this I think goes back to your point about investigative journalism because you really do have to ask the who, what, when, where, why, how, or you're not going to make sense of this market and you're just going to be breathlessly chasing a very large number, which doesn't have to be true. But it also raises questions about what's the outcome? Because if the people do lose the weight, isn't that the goal? Isn't that going to produce a better health outcome?

And then we get into structural issues about who's paying for their access to the drug and who's benefiting from their better health outcome later on. And the do gooder in me then starts to question how everything works.

[18:15] Justin Venneri: Yeah, well that individual will be at the company long enough for the investment to have an ROI because of the lower medical cost down the road? It's definitely a tricky calculation.

[18:24] Michael Kleinrock: Or will they find that their value to the company and their perception of it is such that, if they're told they can't have it, they'll choose to job hunt. And we're in an environment where companies are struggling to hire because we're at very high levels of employment. If you're a valuable employee and you go across the street, what's that do to a company?  

So these are tradeoffs that companies are actively chewing on right now. And the more attention this area gets and the more usage that it gets, we get the combination of the expanding clinical evidence, the expanding clinical experience, and public perception. It generally gets harder to say no the later into a life of a drug you are as the evidence builds.

[19:00] Justin Venneri: Makes sense. Question for you on just drug mix in the trend and how it impacts it, like drug prices generally. You mentioned the biosimilars, you know, alternatives to Humira. There are lots more of them coming to market and expanded indications for those too. How do you see the volume, the low-cost, high-volume drugs are what they are – generics, right? And then there's the higher cost and there's different categories of them. How do you see the mix changing over time as biosimilars grow based on your experience?

I know we only have another 10 minutes.

Content Related to Drug Costs & Managing Pharmacy Benefit Spend

• AH048 - High-Cost Orphan Drugs, Securing Claims Data, and More, with Dr. Eric Bricker
• AH055 - Pharmacy Benefits 101: Stop-Loss Insurance, with Mike Miele, FSA, MAAA
• Replay - Innovative partnerships for GLP-1 management, with Vida Health
• How to Manage Pharmacy Benefit Spend in a GLP-1 World

[19:35] Michael Kleinrock: So, I mean the biologic interesting point because we have biologic medicines across a range of diseases, and only about 20% of the volume is subject to biosimilar competition today.

So I go back to 1984 and we have archived data. I wasn't in this industry then, but I keep the archives. And when the Hatch Waxman law was first passed to create the modern generic industry in ‘84, generic share of prescriptions was 19%. So we're early on, right? It's eventually generic share of prescription something like 90% today.

So we're very early on in the adoption of this biosimilar framework. We've done papers which we call the biosimilar void, which is pointing to the economic disincentives for multiple companies to develop biosimilars, different molecules, how many of them will enter a specific molecule and competitive. But the big ones, the ones with lots of original brand revenue and a lot to play for, are generating multiple competitors and generating that sort of cost savings where it can happen.

And so the issue there though is that because of not everything having interchangeability, competing novel formulations of the originators, originators choosing to compete on price and stay in the market. So the more typical generic erosion concept is that product goes off patent, the brand company quits, the prices drop, the generics all carve it up and everybody's happy and we see our price savings  

[20:53] Justin Venneri: Quickly, right?  

[20:54] Michael Kleinrock: Yeah. So what we found in the last five or 10 years is that even in small molecule generics, and particularly specialty and injectable small molecules, we're not finding the same degree of intensity and depth of the erosion in that side of the market, let alone in the biosimilar market where it's been highly varied.

The Humira example, adalimumab example, first year of those biosimilars, I think they got like 2% of overall molecule volume. We're jumped up again in 2024. We, I guess we simplify, we call it store brand. But there was an agreement with Cordavis and, and one of the PBMs to specifically force a switch to the biosimilar. And that was very effective.  

So what that's telling people in this pharmacy benefit biosimilars is that if you don't have a tie up with a manufacturer with a preferred biosimilar product to force the volume switch, that economically it's a real challenge because essentially if you don't prefer the originator, they'll pull their rebates and the cost of any retained volume that they get is going to be prohibitive, and it will basically eat up whatever savings you got with natural biosimilars.

So the economics are either get a tie up with a dedicated biosimilar that can force the volume or hope. And that's a real disincentive to switching, which is why some pharmacy benefit biosimilars have really low share - you know, 10, 20, 30%.

Whereas medical benefit drugs have been very much a purchaser's dream and they have 60%, 70%, 80% uptake within the first year or two.  

So biosimilars are a big part of savings to a degree, but they have also not been a perfect sector yet. And there are some structural challenges. And then there's challenges as well if you think about like the big biosimilar this year, in 2025, underway is Stelara, and next year it'll be on the IRA maximum fair price negotiation list. So does that just cut off the biosimilar makers at the knees with a new lower price that suddenly takes away any of their financial incentives?

These are questions, because ultimately it's not just savings for the payer. It's about, is the savings I'm getting delivering enough incentive to the generic or biosimilar company to have them be aggressively chasing market share? And the smaller those incentives get, the less that works. And then on the small molecule side, it's the same thing.  

So I this is such a deep topic. We think that genericization is steep and fast. We think that the 90% loss and 90% price reduction is a natural, normal thing that had happened for decades, and it hasn't been happening for a while. And not all of the savings accrues to us. And that is a challenge, not just because the generic challengers don't necessarily have the incentive to go as low on price, but also the originators can defend themselves commercially and compete, which they hadn't always done.

[23:28] Justin Venneri: And in the middle is the medical layer, right, where it's like the actual provider? I remember my old life, there was often times that the doctor would just say this drug works really well for my patient. I really don't want to switch if I don't have to. And there's that barrier or friction point to wider adoption.

[23:46] Michael Kleinrock: Agreed, and there's a provider and patient willingness layer, and there's also the payer, formulary, or institution decision for an infusion center that is, you know, administering a biosimilar for a cancer drug. They are typically choosing what they're administering, and they just tell you.  

Now, the issue is it's not a switch. You were describing a situation where the doctor's like, my patient likes this drug. I don't want to switch. If you're going in for chemotherapy and you're getting Avastin, the next time you go in, what you're getting is you're getting a VEGF mechanism drug for your tumor to stop blood vessel growth going to your tumor. Like that's what you're doing. The biosimilar does that, brand does that. They're just going to use that. There's not a switch necessarily. And generally they're just starting new patients on whatever they're preferring their regimen.

They may continue existing patients on whatever they were on to finish the cycle, but that's what they're doing. But when you have a chronic therapy where the patient has been on therapy and stable and then the similar is not similar enough, you can get provider and patient pushback. And that's definitely something that everyone's concerned about.  

But that episodic versus chronic question is really one in terms of that. And I think 15 years ago when we were first starting to see biosimilars come in, there was a lot of questions about similarity, and there was a lot of questions about switching, and there was a lot of this sort of resistance discussion in all of our talks. It's interesting now that a lot of it is colored by a payer decision layer that had not been seen as important a decade ago.

[25:12] Justin Venneri: I guess when the total pie increases because of price and cost at the rate it has, it becomes a different discussion quickly, right?

[25:22] Michael Kleinrock: Well, and imagine a patient being faced with a question of, you can have this biosimilar or you can have this originator brand at this price, but if you choose not to follow the formulary, it’s this price.  

Now the list prices for the biosimilars are higher. So, imagine your plan says $35 for Humira or I don't know, $500 for the biosimilar, which is cheaper than humorous list price. And I'm making those numbers up, but imagine that that's your choice. Well, you'll stick with what the plan tells you to.  

And I think that's there's a smaller group of people who have that clinical or patient experience or side effect threshold that is going to have them fight and argue. And that's also the psychology of this. And generally, people follow formularies more than they don't.

[26:05] Justin Venneri: So we've got two more questions for you, Michael. Thanks so much for sharing your thoughts on the data. Thanks. What are your thoughts about how drug prices, drug trend are impacting pharmacies and the rest of the supply chain? And I know that's another question where there's a lot to unpack, but just a high-level observation or two would be great to hear.

[26:20] Michael Kleinrock: So at a very high level, the interesting challenge is that high and rising drug prices for novel drugs don't often affect the pharmacy chain as much as you would think. And that's because a lot of the high priced drugs go through specialty or are physician administered.

And so what's happening in the pharmacy part is that sort of medium and low brand price area and the GLP-1s and diabetes and obesity are a good example is there have been reports that most pharmacies lose money every time they dispense a GLP-1.They do it to keep the patient and sell some Diet Coke on the way out the door, I imagine.  

But that question of like the high-cost drugs, the headline ones, the million-dollar drugs, the $100k, $200k, $300k cancer drug. Those are not generally pharmacy dispensed. So it's a different pharmacy economic thing. They've got volume at cheap prices, and they've got a few drugs that are, they're underwater on, but they like the totality because the patients on them are also on other drugs that they make money on.

So I think it's sort of multiple strands simultaneously and for every pharmacy chain or independent, you have to figure out how the math is working. I think as we see more and more tie ups, as I mentioned, the sort of the angle on the biosimilars, you get a narrowing of networks. You have to go to a preferred network with your plan. That creates some tensions. That creates some challenges, but that's how you solve it.  

So that being part of a preferred network with a better reimbursement arrangement with the plans that prefer you and adhering to their requirements to control or influence dispensing and switching and so on, that's their imperative is to essentially figure out which side their bread is buttered on.  

But we're also seeing a shrinkage in the number of pharmacies. We're also seeing not quite deserts, but sort of cracks forming in sort of the regular availability of your corner pharmacy around the country. And that I think affects patients in ways we haven't fully really adapted to. And it's going to be a challenge going forward to figure out the economics for that sector, which is a different question than what's happening to the prices of novel drugs which are for very few people and they're often dispensed separately.

[28:17] Justin Venneri: One thing that caught my eye and it looked like the prescription abandonment in the 2025 annual report. And I was thinking about the vaccine data and like to your point about tying things together to tell stories, it's like, well, if vaccines are down, is that flu vaccine?

Like when you parse the data and look at it, it does seem like that the high abandonment at the counter, so to speak, and then the lower vaccination rate, some of the other things pharmacies have been doing for patients, it seems like --

[28:43] Michael Kleinrock: I think they're linked. I think the pharmacies are branching out into being a vaccinator of choice for contracting reasons. And you saw that with the shingles vaccine. The shingles vaccine was preferred pharmacy to do that, as opposed to dispensing those out to all the doctor's offices and get that.

But I think in terms of abandonment, I mean, you know what we're seeing in terms of abandonment, by the way, those trends aren't moving. The social science of cost exposure to abandonment rates the sort of, at free, there's still 5% abandonment. At $125 or more, it's 50%. Those numbers have been actually like moving only a half a point or so a year. That's social science. That's behavioral. That's, when I see $125, half the people walk away.

And so what's interesting about that, though, is that the more people have a high-deductible health plan or have a deductible in their health plan, the more people will be exposed to that for some of their prescriptions. And so the, the challenge is not whether they abandon all the time, it's what they abandon and what they ration. And when you see someone as they age and we get into our 50s and into our 60s, you start to get people on four or five concurrent medications.

And then are they not taking their blood pressure meds consistently or are refilling on time because they've been pill splitting, or they've been taking them every other day because they're unable to afford the cost burden that they're being faced with?

You know what we find - and we did this report back in 2020; we linked it to household income, and we found that abandonment rate didn't actually vary statistically significantly by household income.

Put another way, nobody likes spending $20.

And it's weird, that’s at the low levels or at the high levels. And so it's a, nobody likes spending that money and they will abandon those prescriptions. And you also see things where doctors will write you three or four or five things that you may not feel you need. So then there's trust of your prescriber and all of that coming into it.

But what's clear to me is that the more people who are exposed to these higher costs, the more people will abandon. And the more we are highlighting the cracks in the system, which is why these discussions of prescription costs, why these discussions of drug costs are so politically advantageous to whoever makes those comments, because everyone believes it.  

And I think that's my kind of parting thought on a lot of this, is that we saw in this report a significant impact on the number of people who are exposed to insulin costs over $35. I think it's sort of inarguable that a patient who's on insulin needs to be on insulin. Clinically, you don't get there without it being medically necessary.  

So the fact that there were patients who were abandoning insulin prescriptions at similar rates to the overall, and that there were insulin prescriptions, again, because the list prices of these things being $300 a vial, you were seeing abandonment rates of half of those. And that is horrifying. So when you reduce the prices to under $35 for most people, you're finding a significant number of people whose costs have been saved, whose abandonment is no doubt dropped. Volume is important, and these, these people's health outcomes will be better. And that is my strongest link to this sort of what's the importance of pharmacy? What's the importance of drug price at this certain level of affordability is incredibly measurable.

[31:51] Justin Venneri: Got it. And last question. So what's the most astonishing or surprising thing that you saw in the data this year that's safe to share, of course. I'm sure you see a ton because of how much data you guys have access to to pull these reports together. So give us an interesting observation to send us off.

[32:07] Michael Kleinrock: I thought it was really astonishing that, at net price levels - so price growth, the changes in the price of medicines - they didn't change. For all the conversation about prices, for all the conversation about prices rising and being unaffordable, the prices didn't change. 0.1% change in the price of protected branded products from 2024 over 2023.  

Now even the list price growth was only like 2.5%, 2.3%. I mean, all my career we've had 5 to 8% list price growth on branded products every year. Itas been a normal feature of the US market, and we just don't do that anymore.  

And so the populism and the media coverage of prices for the last decade has changed the landscape of how prices happen. And fundamentally that means that they don't increase during the life of a product, but we are seeing launch prices are higher and that function of these specialty, niche, and orphan drugs, but also may be linked.  

So I thought it was a pretty interesting dynamic that the launch price and negotiating what that is from a plan perspective is even more important, and what the concessions or rebate levels or whatever are going to be, is even more important because there isn't going to be essentially a dampening of the curve through the midlife because there's already no growth. You're not going to get negative net growth during a protected life. So where do you go?  

I thought that, to me, was the sort of the last decade has really shown us the impact on pricing. It has not necessarily addressed the distribution of costs between patients and payers and so on. I do think it's interesting. I answer two ways. I'm sorry I have to do this.

Basically over the last five years, patient out of pocket costs grew about 4% and all the other costs grew more. So for everything we've been saying about patient out of pocket costs, patient costs are growing more slowly than the overall costs or the payer costs. And I think to me this is, there's psychology and psychosis, I think mixed into one. Everyone believes that story that you hear about the woman in Poughkeepsie who can't afford her medicines that I hear or read in every newspaper article. Everyone believes that and believes it must be true and believes the worst things about things. They don't believe the reality of what we show them in the aggregate numbers.  

And it's important to say there are a few people who are experiencing most of the inequities in how their costs are distributed. Often they're the sickest, often they're with these rarer diseases and they hit their deductibles and out of pocket maxes more. But genuinely, it is very interesting how so many people think the market works compared to how it is actually working.

[34:32] Justin Venneri: And I guess the most favored nation wrinkle will be a TBD on the whole thing, right?

[34:38] Michael Kleinrock: You know, it is. And then one of the sort of hobbies that we, as researchers have for most of my career has been comparing the US to other markets for comparing markets in terms of what they spend and what they get for the money. And there's so much discussion of this topic, which is challenging because the countries manage their health systems differently and valid comparisons are actually really hard to do, like mathematically and from the availability of information.

But definitely a question about whether US spending is too high or other countries spending is too low is a really interesting debate that I never thought would be the central topic in healthcare – geopolitics. I thought it was just my own hobby.

[35:17] Justin Venneri: Here we are. Yeah, well, we'll have to have you back on to see how that unfolds. And Michael, really appreciate you taking the time today sharing your thoughts about the data, the reports you guys have done. I hope, you know, like I say, I hope to have you back on to share some updates.

[35:30] Michael Kleinrock: Well, I appreciate the time. And just don't call during July. I have to watch the Tour de France.

[35:35] Justin Venneri: Fair enough. Have a great rest of your day.

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