Prepping for Another Round of Rx Benefit Cost Growth

Our Thinking / Healthcare /

Prepping for Another Round of Rx Benefit Cost Growth
Calendar05 September 2014

The average annual increase in prescription drug benefit cost has hovered around 5%–6% since 2010, but many employers remember well the long period in the last decade when double-digit drug cost increases far exceeded general medical cost growth.

One reason for the recent slow-down in drug cost growth has been the influx of generic drugs into the market as some major drug patents have expired. Many employers have strengthened measures that give employees strong financial incentives to select generics over expensive brand-name drugs, and to purchase a 90-day supply of maintenance drugs through mail-order plans or “Retail 90” programs that offer higher discounts (instead of a 30-day supply at a retail pharmacy). Pharmacy benefits managers (PBMs), now used by 20% of all large employers (those with 500 or more employees) and nearly half of those with 10,000 or more employees, have helped to facilitate these and other cost and utilization management strategies. (These and all following statistics come from Mercer’s National Survey of Employer-Sponsored Health Plans 2013.)

While cost growth has slowed due to the increased availability of generic drugs, two factors suggest that trend will accelerate in the upcoming years. First, specialty medications that treat rare conditions are being prescribed more frequently. While these medications improve the health status of the patient, they can be extremely expensive. Second, manufacturers of non-specialty brand-name drugs for which there are no generic equivalents have been increasing their prices prior to their product losing patent protection.

What can employers do to protect themselves from a resurgence of prescription drug benefit cost growth? Participating in a prescription drug purchasing coalition gives employers leverage to improve the terms of their contracts with pharmacy providers. In addition to the immediate cost savings, employers in collectives have access to enhanced clinical oversight that help to moderate cost growth and improve pharmacy adherence among patients with chronic conditions. The largest employers have been the first to join: While 16% of all large employers belong to a purchasing coalition, that number rises to 23% of employers with 5,000 or more employees.

Consider whether you’re doing enough to encourage the use of low-cost generic drugs, which now account for about 80% of all prescriptions. Employers have kept the copayments for generic drugs low (while raising copays for brand-name drugs) to make generics the more attractive choice for plan participants. About a third of employers (32%) have gone further by implementing a mandatory generics provision within their drug plan, although some will allow a physician to override the requirement.

Finally, it’s worth taking a close look at your specialty drug claims. Specialty drugs account for about a quarter of drug costs in the United States, even though few patients are prescribed these drugs. Specialty drugs are prescribed to treat complex diseases including cancer, rheumatoid arthritis, and multiple sclerosis. The cost of these drugs can vary by thousands of dollars depending on administration method. Specialty drugs often require self-injections and infusions, and can cost upwards of $2,000 a month. Specialty drugs are based on advanced research involving living proteins, limiting opportunities for preferred alternatives and generic substitutions. Two-fifths of large employers encourage plan members to fill their specialty medications through a specialty pharmacy, most commonly by excluding some or all specialty medications from the retail drug plan or medical benefit (20%) or by offering lower cost-sharing (9%) if the plan member uses the specialty pharmacy.

Only about half of large employers track the change in specialty drug cost from year to year. Among those that do, experience varied widely. About a quarter of large employers (23%) saw an increase in the average annual cost per employee for specialty medications at the last renewal — and among those, the median increase was a sharp 15%. At the same time, another 27% reported that the average cost stayed the same, suggesting that some employers are having success in managing this substantial cost.

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