Can Pharmaceutical Costs Really Be Contained?

The challenge to contain the cost of pharmacy benefits grows every year. The pharmaceutical industry thrives on complexity. New drugs and variants come to the market each year, and countless more are in development. Contracts are intentionally complicated and confusing, and many organizations do not have the time or resources to being to address the industry’s cost inflation.

In this environment, many employers remain hesitant to evaluate PBM contracts and leverage pharmacy plan design changes as a cost containment measure. But taking a passive approach is a missed opportunity for substantial financial saving – for you and your employees.

Are drugs affordable?

Well, it depends on who you ask. Kaiser surveyed the public in 2022 and 83% thought the prices of drugs were unreasonable. However, the same survey was given to patients using medications, and 69% of them said affording their drugs was easy. So, which is it – overpriced or affordable?

The reality is employers often bear the brunt of the cost when it comes to pharmacy benefits. While plan members picking up their medications feel their medications are generally affordable, their price is heavily subsidized by the employer.

Regulatory and governmental interventions, like the cap on insulin costs, seek to improve drug costs. Generics and biosimilars are released to provide alternatives to high-cost drugs. However, these improvements will pale in comparison to the astronomical costs coming from pharmaceutical innovation.

Specialty and Orphan Drugs

Prescription drug costs, specifically specialty medications including orphan drugs and gene therapies, are among the top factors driving the cost of pharmacy benefits programs. These specialty drugs – which are prescribed to only 3% of U.S. patients – now represent 51% of drug spending.

And the industry forecast is more of the same:

• 250 new drugs in the next five years — adding $100B to the health care system
• Employee specialty medications cost expected to increase at least 13% in 2023
• 960 high cost, next-generation biotherapeutics in development

Two drug categories are leading the charge in cost and drug development — cancer and obesity. The question for employers to ask themselves: “Is my plan prepared to handle these costs?”

Oncology Medications

Cancer is the second leading cause of death among Americans. Consequently, oncology treatment is forecasted to remain among the three highest spending areas from now until 2027.

• 38% of medicines in development today are being developed for oncology
• The National Cancer Institute predicts the burden for patients with cancer and private health insurance will continue to climb
• Oncology spending is expected to double by 2027, up to $370B

Obesity Medications

Four in 10 American adults have obesity and that rate continues to climb according to a 2022 report by Trust for America’s Health. With this epidemic come specialty drugs that contribute to the rising cost of employer health care.

GLP-1 class diabetes drugs are a class of drugs approved for treating obesity. Their utilization rate continues to grow and with average costs between $13,000 and $16,000 annually, they will have a significant impact on the employer burden as the obesity epidemic remains an issue throughout the nation.

So, what options do employers have?

Costs are skyrocketing, pharmaceutical innovation is expanding and employers will bear the brunt of the cost. But in the middle of this complex and costly industry – there is hope.

Medications costs are impacted by drug manufacturers as well as intermediaries like pharmacy benefit managers (PBMs). They add margin and increase overall costs. The evaluation and renegotiation of PBM contracts is employers’ greatest opportunity to realize savings without any member disruption. Employers do not need to understand every little detail of these complex contracts, if they have a proactive partner that can do the heavy lifting.

Choosing the right partner is key. Leveraging pharmaceutical industry expertise can create sustained cost savings – for employers, but most importantly for the employees and plan members who rely on these medications every day.