Pharmacy Costs Are Adding Up
Sponsored By: Scott James at J.W. Terrill
What’s Your Prescription for Pharmacy Costs?
As an important member of your District’s employee benefit administration team, you know that your District’s health plan expenses represent a significant percentage of the overall budget. You also know that the cost of prescription drugs has been increasing at a faster rate than medical costs. Today, prescription drug claims likely represent between 20-30% of your District’s total healthcare claims. However, that percentage is going to rise dramatically over the coming years and it’s critical that you:
- be aware of this trend;
- understand what is causing the trend; and
- begin thinking about potential strategies to address the situation
What is causing the trend?
Specialty Drugs – By now, everyone has heard of “specialty drugs”. These are high-cost, mostly-injectable drugs that are designed to treat very special conditions like cancer, rheumatoid arthritis, MS, etc. Today, specialty drugs represent approximately 40% of all drug spend even though only 1-2% of an employer’s members utilize the drugs. The number of conditions that are being treated by specialty drugs is expected to grow and manufacturers are constantly trying to improve the existing drugs which allows them to continue to increase the price.
Location of Service – According to UnitedHealth Group research, where these expensive drugs are administered has a significant impact on the overall cost to your plan. Moving the administration of these drugs away from hospital outpatient settings to doctors’ offices and patients’ homes would reduce drug spend in the United States by approximately $4 billion. Their research included very specific examples including an MS drug that, when administered in hospital outpatient settings cost an average of $20,965 per prescription versus being administered in doctors’ offices or at home cost an average of $11,000.
Gene Therapy Drugs – These new drugs are capturing most of the press recently because of the incredibly high cost associated with them. The Mayo Clinic defines gene therapy drugs as drugs that are designed to replace faulty genes or add a new gene to a person to cure a disease or improve the body’s ability to fight the disease. Most recently, the FDA has approved a drug called, Zolgensma, which is used to treat muscular atrophy in children under the age of two. This particular drug comes with a $2.1 - $2.5 million price tag but has proven very effective at treating the disease. According to the FoCUS Drug Development Research Team at MIT ( January 2019), 40-60 new gene therapies will be launched by the year 2030.
Please understand that these trends are going to impact your plan whether it is fully-insured or self-insured.
What should I be doing to best position my District’s health plan against these rising costs?
There is not a “one-size fits all” solution. Continue to learn as much as you can about industry trends. Your benefits advisor should be great resource for information, industry trend updates and potential solutions for your consideration.