There’s an uptick in prescription drug pricing trends. As drug costs continue to increase, it’s important for employers to understand why prescription prices are rising and what cost-cutting solutions are available to manage expenses.
Prescription drug cost drivers
Although prescription drug spending has historically been a small proportion of national healthcare costs compared to hospital and physician services, it has grown rapidly in recent years. According to CMS, prescription drug spending increased 7.8% to $378.0 billion in 2021, up 3.7% from the previous year.
A recent study found that “In 2022, overall pharmaceutical expenditures in the US grew 9.4% compared to 2021, for a total of $633.5 billion. Utilization (a 5.9% increase), price (a 1.7% increase) and new drugs (a 1.8% increase) drove this increase.” These results illustrate increasing prescription drug spending, especially with new, specialty and cancer drugs. Employers will have to watch for a predicted rise of 6% to 8%, according to the same study.
A multitude of factors led to this steady rise in prescription drug pricing, including the following.
Influx of specialty drugs
Specialty medications account for a smaller portion of U.S. prescriptions than non-specialty drugs. However, they now command over half of the pharmaceutical market — 53% of prescription drug spending in 2021 was for specialty drugs, according to a 2022 report by The Segal Group. Specialty medications often require special handling and administration, and can be more complex and expensive to develop, adding to the cost.
Specialty drug spending is projected to experience rapid growth over the next several years due to price increases. In 2022, experts predicted a 13.4% increase in specialty drug prices, compared to a 4.6% rise in non-specialty drug prices, according to the Segal report. Insurers often cite these drug price increases as reasons for rising insurance premiums.
Price inflation
Specialty drugs are not only commanding the pharmaceutical market. They are also replacing lower-cost therapies. These drugs are being pushed at a higher rate than non-specialty drugs, contributing to prescription drug pricing inflation. There is little recourse for anyone seeking a cheaper alternative to these specialty pharmaceuticals.
There are currently few biosimilar drugs (similar to the specialty drug’s composition but not identical) that can be used in place of specialty medications — the FDA only approved four in all of 2021. As more of these drugs gain traction, drug manufacturers have been developing strategies to secure their market share, such as price matching and negotiating more favorable rebates with plan sponsors.
Cost control strategies
Below are several tactics that insurers, employers and consumers have implemented in an effort 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
Using generic drugs is a recognized way to save money on prescriptions without sacrificing quality, but a lesser-known option may be using cash to buy prescriptions instead of insurance. No longer bound by gag clauses as of 2018, pharmacists can now tell an individual if they’ll save money by not using insurance and paying with cash instead.
Rebates and discounts
Some businesses have elected to partner with organizations known as pharmacy benefit managers to negotiate with pharmaceutical manufacturers. They do this 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, which increase their leverage 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 local pharmacies and locate available coupons. Some consumers are also looking to 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 of a necessity for employers.
Contact HANYS Benefit Services today for help with developing strategies to manage your employees’ prescription drug costs. Our dedicated team of experts is here to help you with all of your retirement and employee benefit needs.
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.