A three-pronged approach to help control prescription drug costs

Rising drug costs

Prescription drug spending will grow faster than any other major medical good or service, forecast to grow at 6.3% per year through 2026.1 What’s driving the increase?

The answer is complex, but two factors are hyperinflationary drugs and specialty drugs, including biologics.

First, there are the inexplicably expensive drugs we’ve all heard about in the news. EpiPen® became a poster child for hyperinflationary drugs after Mylan increased the price six-fold.2 The good news is that monopolies are drawing scrutiny and prompting legal action.

Specialty drugsBut it’s not just brand-name drugs that are driving up costs. Generics can be costly too. Specialty drugs, some of which are generic, can be expensive to develop and may use cutting-edge technology for production. They may also require special handling and are often administered by infusion. These factors can mean high costs for payers – cancer drugs routinely cost $10,000 a month.3

It follows that specialty drugs represent an outsized share of costs. Although less than 3% of prescriptions are specialty drugs, they account for up to 45% of the overall cost of prescriptions.4 

How can we get the most value for our prescription dollars?

Payers and insurers can use these tools to help keep costs in check:

  • Formularies
  • Pharmacy benefit management companies (PBMs)
  • Care management

Formularies – a buyer’s guide to pharmaceuticals

Formularies are the first line of defense in keeping pharmacy costs down. As many as 50% of all medicines are either duplicative or of questionable value5 – at odds with evidence-based medicine. Formularies have evolved to guide providers and patients to drugs that are both effective and less costly.

For example, they often include a provision for step therapy, requiring patients to try a lower-priced drug before a more expensive option.6 Other types of utilization management include prior authorization – even for some generics – and quantity limits.

To help control the cost of specialty drugs, preferred specialty pharmacies are often used to yield lower negotiated rates compared to market prices.

Prescription Benefit Managers (PBMs) are gaining leverage

On behalf of payers, PBMs use their volume-buying leverage to negotiate rebates from drug manufacturers. By adding more clients, PBMs are steadily increasing their bargaining power. At the same time, consolidation among PBMs has given payers more power to negotiate reduced dispensing fees with pharmacies.7 Employers may find a valuable ally in PBMs, who can spread the costs for research, negotiation and decision making about drug-reimbursement policies across all their clients.8 

Care management for specialty drugs

Medications not taken as prescribed

Up to 50% of medications are not taken as prescribed.9 In addition to the negative impact on health outcomes, mistakes and poor adherence can have a high price tag. The Society for Human Resource Management says care management is vital in tackling specialty pharmacy costs.4 Care management professionals can help address social issues that are a barrier to compliance and educate patients to help prevent or mitigate adherence issues.

How can your business better manage pharmacy costs?

You’ll want to understand how your formulary works and how your PBM or insurer negotiates drug prices on your behalf. Also, make sure your plan provides care management for patients who are prescribed specialty drugs. To learn more about strategies for your business:

Citations and sources

About Jameson Reuter, PharmD, MBA, BCPS

Jameson “Jamie” Reuter, PharmD, MBA, BCPS, is vice president, enterprise pharmacy solutions. He is responsible for pharmacy services for members of EmblemHealth and ConnectiCare health plans. His experience spans practice in retail pharmacy, hospital, and critical care settings as well as teaching at the University of Maryland School of Pharmacy. Jamie received his doctor of pharmacy degree from the University of Toledo and a master’s in business administration from the Carey School of Business at The Johns Hopkins University.