Prescription Drug Costs Head North Again

Prescription Drug Costs Head North Again

Our Thinking / Healthcare /

Prescription Drug Costs Head North Again
Calendar05 February 2016


It was nice while it lasted. The average annual increase in prescription drug benefit cost jumped up to 8% in 2015 after five years of hovering around 5%–6%. Many employers remember the long period of double-digit drug cost increases in the late 1990s and early 2000s. We’re not back to that point yet, but we’re heading in that direction.

It’s a perfect storm of cost pressure. The influx of new generic drugs into the market has slowed, so we’ve lost that brake on cost growth. At the same time, we’re seeing unexpected increases in the cost of many generic drugs. Employers and pharmacy benefit managers (now used by 19% of all employers with 500 or more employees and nearly half of those with 10,000 or more) have given employees strong financial incentives to select generics over brand-name drugs, but this tactic has become less effective as the cost of generics rises.

Topping the list of cost drivers, however, is the increased use of new specialty medications for treating complex diseases like cancer, MS, and hepatitis C. The largest employers (those with 10,000 or more employees) are the most likely to track the cost of specialty drugs separately. Among the 65% that can track cost, the average increase in 2015 was a whopping 25%.

What can employers do to protect themselves from this 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 helps 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 24% of employers with 5,000 or more employees.

Consider whether you’re doing enough to encourage the use of 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. Is it time to think about raising them, or moving to coinsurance? 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. Step therapy -- the use of generic or preferred brands required before a non-preferred brand -- is required by 55%.

We’ll address strategies for managing specialty drug cost growth in an upcoming post. Meanwhile, you can start by asking your carrier or PBM for a separate accounting of specialty drug costs, and what they’re currently doing to address the issue.

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