As prescription drug costs continue to increase, it is important for employers to understand the trends behind prescription drug costs and what they can do to better manage their health care expenses.

In 2019, the United States was projected to spend over $500 billion on prescription drugs, by some estimates—12 times more than the $40.3 billion spent in 1990. Although prescription drug spending has historically been a small proportion of national health care spending compared to hospital and physician services, it has grown rapidly in recent years.

In 2014, prescription drug spending in the United States increased by 13.1 percent—the largest increase since 2003. This jump was due to several factors—a major one being a 30.9 percent increase in spending on specialty medications, which are high-cost drugs used to treat complicated conditions like hepatitis C, cancer and rheumatoid arthritis. The growth in prescription spending was also due to more people being insured and gaining prescription drug coverage as a result of the Affordable Care Act (ACA).

Reasons Behind Prescription Drug Trends

A multitude of factors led to changes in prescription drug costs, as outlined below.

1. Increasing Drug Prices: In 2017, traditional prescription drug spending decreased by 0.3 percent. Specialty medications prescriptions commanded 40 percent of the pharmaceutical market in 2016 ($180 billion). Specialty drug spending is projected to experience rapid growth over the next several years, due to pricing increases.
    
2. Types of Drugs Used: Approximately 49 percent of the drugs that gained Food and Drug Administration (FDA) approval in 2014 were specialty drugs, pointing to a steady rise in usage. This trend is likely to continue as more specialty drugs enter the market.
    
3. Failure to Follow Physician Orders: A failure to fill prescriptions can have serious effects on patient health and lead to more costly medical problems down the road. A study found that 31 percent of prescriptions go unfilled and individuals over the age of 52 were more likely to fill their prescriptions than their younger counterparts. Women were more likely to fill their prescriptions than men, and, drugs with higher copayments were less likely to be filled.

Cost Control Strategies

Several tactics that employers and consumers can implement in an effort to curb rising prescription drug expenses are:

1. Managing Usage: Many health plans have responded by creating drug formularies, which exclude certain drugs from coverage and step therapy requirements, which require individuals to try more cost-effective treatments before “stepping up” to more costly drugs. Prior authorizations may be required when an insurer believes a less expensive drug may work just as well as the more expensive drug the doctor prescribed.
    
2. Using Other Payment Methods: Using generic drugs is a well-known way to save money on prescriptions without sacrificing quality, but a lesser-known option may be using cash to buy prescriptions—instead of using insurance. No longer bound by gag clauses as of 2018, pharmacists can now say whether you’ll save money by not using insurance and paying with cash instead.
    
3. Rebates and Discounts: Some businesses have elected to partner with organizations known as pharmacy benefit managers in order to negotiate with pharmaceutical manufacturers to receive rebates and discounts on prescription drugs based on factors like volume and market share.
    
4. Employee Awareness: Employers are not the only ones seeking to reduce costs when it comes to pharmaceuticals. As employees’ out-of-pocket responsibilities continue to grow, rather than paying for a brand name, more people are asking for cheaper or generic versions of drugs. Consumers are also using the internet and phone apps to make price comparisons between local pharmacies and to locate available coupons. Some consumers are also looking to mail-order pharmacies to handle 90-day supplies of their medications, which often offer lower drug prices.

To discuss developing strategies to control your employees’ prescription drug costs, contact Eric Trost, vice president of employee benefits at Western Growers Insurance Services, at (949) 885-2211 or [email protected].