Prescription Drugs Take a Bigger Chunk of Your Benefits Budget

Saturday, November 16, 2019

President Trump vowed that drug “prices will come down” during his State of the Union address. But for now, drug companies continue to increase prices, which is a big concern for employers offering prescription benefits and consumers who pay a percentage of the costs.

Pharmaceutical companies kicked off 2018 with price increases near 10% for many popular brand name prescription medications (FiercePharma). Specialty drugs like Humira and Enbrel rose 9.7% or $430 per month, for a total of around $4,300 (Reuters). Other brand drugs, such as Viagra and Lyrica, increased in price by about 9.5% (Figure 1).

Viagra is currently available generically, at a lower cost. Lyrica’s patent is set to expire in December 2018.

Generic and Older Drugs Can Also Face Big Price Increases

Reuters and FiercePharmaFigure 1: Price Increase by Drug | Data Sources:

Most people equate brand name drugs with rising costs, but older medications and generic drugs are not immune from steep price hikes. Generic medications, which are equivalent to the brand name products, are typically much less expensive, and are usually produced by more than one manufacturer. The competition keeps the costs down.

But lower profit margins on generic drugs cause some manufacturers to leave the market. This exodus and selling manufacturing rights of generics to another company can lead to historic price increases. One example is the drug Daraprim, which has been on the market for quite some time. In August 2015, the manufacturer raised the price for Daraprim by 5,000% (The New York Times).

Price Hikes for Life-saving Medications Raise Public Outcry

Since then, the US has continued to see price hikes, some of them on life-saving medications like EpiPen®, for severe allergic reactions, and insulin, for the treatment of diabetes. Manufacturer’s responded by noting that these high price tags do not typically reflect the final cost of the drug.

Administrative middlemen in the drug distribution chain are often compensated by the manufacturer, which contributes to rising drug prices. Ultimately, pharmacy network discounts, rebates, and manufacturer copayment coupons are offered to reduce the final cost. But there is much debate on how much these cost containment tactics benefit consumers.

Legislative Action

Advocates for both consumers and payers have pressured federal and state legislatures across the country to act. There are many new regulatory proposals aimed at controlling the rising costs of prescriptions. Some of the most interesting approaches are found at the state level (click here to view map), which are tracked by the National Academy for State Health Policy:

  • Regulating pharmacy benefit managers (PBMs) to require standards of practice and greater transparency on pharmacy reimbursements, rebates, and customer charges. The approach also calls for the removal of any limitations on the dispensing pharmacist to counsel consumers on drug costs.
  • Importing prescription drugs from Canada
  • Requiring pharmaceutical manufacturers to substantiate price increases
  • Creating drug purchasing and negotiation alliances between multiple agencies
  • Establishing maximum drug payment and reimbursement rates
  • Imposing penalties on manufacturers for price increases above a threshold over a period of time.

What Can You Do?

In the coming year, it will be interesting to see how these proposals materialize and how quickly we can better align medication costs with affordable outcomes for both payers and consumers. But for now, there are some things you can do:

  • Make sure client PBM contracts adjust network discounts or rebates to account for brand drug price increases.
  • Ask third party administrators to review treatment alternatives and confirm that they promote the lowest net cost options in the drug category.
  • Ask your carrier or PBM to seek the best deal for all generic drugs, rather to batch groups of drugs together when negotiating pricing.
  • Encourage employees to use generics instead of brand name drugs, when available. Switching could save members money.
  • Educate employees about web-based consumer drug pricing tools like GoodRx, where they can compare prices and even get discount coupons.

You can also get gain tremendous insight from integrating and analyzing your medical and pharmacy data. You can identify:

  • How many employees are going to hospitals for their drug infusions rather than less costly site of care alternatives-physician offices or in-home services
  • How many members in your population are taking certain drugs so you can forecast how price increases to those medications will impact your costs
  • What you’re paying for prescription drugs in comparison to other companies (comparative analytics).

Taking any or all these steps will help you better manage your prescription benefit costs.

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