Navigating Rising Pharmacy Costs: Strategies for Employers
As pharmacy costs continue to rise, exerting pressure on employer-sponsored health plans, it is increasingly crucial for organizations to understand the factors driving these expenses and implement strategic solutions to alleviate them. Fortunately, employers have unique opportunities to tackle these rising costs head-on while simultaneously enhancing the health benefits experience for their employees.
Understanding the Current Landscape
Today, pharmacy costs make up nearly 30% of total health plan spending, a stark increase from 21% just four years ago. A combination of challenges has fueled this rise, including:
- Lack of Transparency: The complexities surrounding medication pricing are often opaque, leading to staggering markups of more than 1000% and, in some cases, nearly 9000%.
- Rebates and Discounts: Drug manufacturers negotiate rebates with pharmacy benefit managers (PBMs) for favorable formulary placements. Unfortunately, many of these savings are not passed on to plan sponsors, resulting in significant financial leakage. The lucrative nature of these deals is evidenced by a large majority of manufacturers’ marketing budgets being dedicated to formulary access.
- Expansion of Specialty Drug Growth: With the rise in chronic illness and cancer diagnoses, as well as industry “hot topics” like GLP-1s, specialty and niche drug prescriptions have surged. These medications often come with high price tags, as they are frequently marketed as the best or only option for treatment.
- Drug Testing Regulations: Unlike other countries that compare new drugs to existing therapies, the U.S. regulatory framework primarily tests new medications against placebos, fostering a perception that “new equals better.” This, in turn, contributes to increasing costs without ensuring actual efficacy.
Positive Developments and Strategic Solutions
While the current market conditions present significant challenges for employers, there are various paths to address rising costs:
- Increased Transparency: Recent lawsuits and legislative efforts, along with Executive Order 14273 and Executive Order 14297, are pushing for greater transparency in pharmacy pricing. Additionally, the emergence of direct-to-consumer platforms allows patients to access the true prices of drugs, effectively removing large PBMs and lowering costs.
- Customer-Focused PBMs: New boutique PBMs are entering the market with innovative models that prioritize customer service, efficiency and cost savings—some even returning drug acquisition costs and 100% of earned rebates to plan sponsors.
- Alternative Sourcing: Biosimilars, which offer nearly the same therapeutic benefits at a fraction of the cost, can serve as effective alternatives to high-priced specialty drugs. Moreover, sourcing generic medications internationally can further reduce costs.
- Independent Testing: While the FDA only tests new drugs against placebos, some partners, such as one of the PBMs Scott Insurance works with, conduct their own testing to see if new and specialty drugs genuinely are better than others or if a more cost-efficient option works just as well, if not better.
With a proactive approach, employers can not only manage their pharmacy expenditures more effectively but also enhance the overall health and satisfaction of their workforce. Collaborating with a Benefits Consultant can illuminate areas for potential cost savings and foster tailored strategies that align with your organization’s specific needs.
