As prescription drug costs continue to increase, it’s important that employers understand the trends behind that rise and how they can better manage their expenses.
Prescription drug cost drivers
According to CMS, the U.S. spent over $348 billion on prescription drugs in 2020. Although prescription drug spending has historically been a small proportion of national healthcare costs compared to hospital and physician services, it’s grown rapidly in recent years.
Let’s explore some of the key factors that have led to this steady rise in prescription drug costs and examine cost-cutting solutions for employers.
Influx of specialty drugs
Specialty medications account for a smaller portion of U.S. prescriptions than nonspecialty drugs; yet they now command over half of the pharmaceutical market — 53% of prescription drug spending in 2021 was for specialty drugs, according to a report by The Segal Group. Specialty medications often require special handling and administration and can be more complex and expensive to develop.
Specialty drug spending is projected to grow rapidly over the next several years due to pricing increases. In 2022, experts predict a 13.4% increase in specialty drug prices compared to a 4.6% rise in nonspecialty drug prices, according to the same report. Insurers often cite these price increases as reasons for rising insurance premiums.
Price inflation
Specialty drugs are not only commanding the pharmaceutical market; they are replacing lower-cost therapies. According to a separate Segal report, 40% of new products recently
launched by drug manufacturers were specialty medications. These drugs are now being pushed at a higher rate than non-specialty drugs, contributing to price inflation. There is little recourse for anyone seeking a cheaper alternative to these specialty pharmaceuticals.
There are currently few biosimilar drugs (drugs that are similar, but not identical, to the specialty drug’s composition) that can be used in place of specialty medications — the FDA approved only four biosimilar drugs in 2021.
However, the volume of available biosimilars has increased 60% since 2019, according to Segal. As more of these drugs gain traction, drug manufacturers are developing strategies to secure their market share, such as price matching and negotiating more favorable rebates with plan sponsors.
Failure to follow physician orders
Reductions in drug utilization may mean patients aren’t adhering to the drug treatments recommended by their doctors. A failure to fill prescriptions can have serious effects on patient health and lead to more costly medical problems down the road. One study found that 31% of prescriptions go unfilled and individuals over the age of 52 were more likely to
fill their prescriptions than their younger counterparts. Women were more likely fill their prescriptions than men and, unsurprisingly, drugs with higher copayments were less likely to be filled.
Prescription drug trend projections
According to a JAMA Network analysis, by 2028, prescription drugs will comprise 9% of the total U.S. health expenditure, approximately $863 billion.
Additionally, CMS predicts that new specialty drugs will enter the market during this period and fewer generic drugs will be launched. These projections are subject to change, particularly since the impact of the COVID-19 pandemic is still not fully understood.
Cost control strategies
Below are several tactics that insurers, employers and consumers have implemented to curb rising prescription drug expenses.
Usage management
Many health plans have responded to rising costs by creating drug formularies, which exclude certain drugs from coverage, and step therapy requirements, which require individuals to try more cost-effective treatments before “stepping up” to more costly drugs.
In addition, some insurance plans have increased patients’ out-of-pocket responsibilities by imposing separate prescription deductibles and requiring certain medications to have prior authorization. Prior authorization may be required when an insurer believes a less expensive drug may work just as well as the more expensive drug the doctor prescribed.
Other payment methods
Buying generic drugs is a well-known way to save money on prescriptions without sacrificing quality. But did you know how you pay for your prescription can also impact the price? In some instances not using insurance, and paying out of pocket instead, can save you money. No longer bound by gag clauses as of 2018, pharmacists can now tell an individual if it’s cheaper to pay out of pocket.
Rebates and discounts
Some businesses are partnering with pharmacy benefit managers to negotiate with pharmaceutical manufacturers to receive rebates and discounts on prescription drugs based on factors like volume and market share. Similarly, some employers have joined together to create prescription drug purchasing pools to increase their buying power when negotiating lower prices for prescription drugs.
Employee awareness
Employers are not the only ones seeking to reduce costs for pharmaceuticals. As employees’ out-of-pocket responsibilities continue to grow, more people are asking for cheaper or generic versions of drugs rather than paying for a brand name.
Consumers are also using the internet and phone apps to make price comparisons between pharmacies and find coupons. Others use mail-order pharmacies to obtain 90-day supplies of their medications, which often offer lower drug prices.
Summary
Cutting prescription drug expenses may not be easy, but it’s becoming more and more of a necessity for employers.
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This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2015, 2018, 2021-2023 Zywave, Inc. All rights reserved.