Employers are rightfully concerned about the ever-growing cost of prescription drugs, but they typically lack the data visibility and tools to do much about it. (Photo: Shutterstock)
More than ever, the push for greater transparency in prescription drug prices and lowering prescription costs for consumers and plan sponsors is gaining ground in Washington. It's encouraging to see traction at the federal policy level, given that trendlines are leading to an unsustainable cost situation for American consumers and businesses.
Recent data show prescription drug price increases are outpacing inflation, with prices of some of the most widely used brand-name drugs rising twice as fast as overall inflation. This has a real, dollars-and-cents impact. Today 1 in 4 people in the U.S. have difficulty affording their medications. And employers — who are often challenged to understand their prescription drug spend — report significant concern about sharply rising pharmacy costs.
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The current focus on drug costs is an important reminder of the overall theme recognized by the employer community for years: overspending on health care is wasteful, harmful to consumers and inefficient for our economy. Consumers and employers need greater visibility into health care costs, including on prescription drugs, so they can make more informed choices and save money.
Longstanding challenges
Today it's not uncommon for a large employer's pharmacy spend to account for more than 20% of their total health benefit costs. For some, it tips over 30%. Employers are rightfully concerned about this ever-growing cost center, but they typically lack the data visibility and tools to do much about it.
While new federal transparency rules may provide some helpful data, prescription drug pricing remains uniquely complex and opaque. Employers are largely at the mercy of their pharmacy benefit management (PBM) partners, who have their own interests and profits to protect. These partners frequently don't share historical claims and rebate data, which limits employers' freedom to make informed, independent decisions about their drug spending. Moreover, rebate guarantees further obscure the real costs of some medications and make it difficult for employers to confidently compare medications and remove wasteful drugs from their formulary.
As a result, employers struggle to actively manage their pharmacy benefit. In turn, employees struggle to navigate their formulary to understand which drugs are covered, the price and out of pocket costs, and whether they can or should be exploring an alternative medication.
Available solutions
The immediate options for addressing these challenges are limited. Employers can try to adjust their formularies to remove low-value drugs, but it's typically a drawn-out process. They could also try to remove overpriced, ineffective drugs, but that may cause disruption for members and consequently burden benefit managers.
Employers need solutions that offer visibility into where their pharmacy dollars are going and what they, and their employees can do to reduce spending without sacrificing clinical quality — that is, which drugs can be substituted to achieve the same clinical effect at a lower price.
Here are some examples in our data that demonstrate the need for greater transparency and fairness in drug costs:
- An analysis of nine psoriatic arthritis drugs used by 450 members showed a potential savings of 84% by switching to a generic biosimilar that's just as effective.
- Vyvanse is a drug commonly used to treat attention deficit disorder. A generic alternative costs 90% less.
- Otezla is a drug used to treat arthritis, and a generic alternative generally costs 99% less.
This isn't to say that everyone would or should switch to the generic alternative, but it gives an idea of the potential savings. This kind of information empowers choice and puts money back into the pockets of American businesses and consumers.
The road ahead
Federal policymakers are turning up the heat on pharmacy spend and price transparency, but it will take months or even years to see regulations in motion and gauge their impact. That's why now is the right time for industry innovators to answer the call and bring to market solutions that better support employer knowledge and consumer choice.
I remain hopeful that our lawmakers will align to push the health care system toward a more rational and transparent future for America's prescription drug cost problem. In the interim, the path to lowering overall costs for plan sponsors and consumers should center around greater transparency — better access to data, the ability to analyze and understand drug utilization on both a clinical and financial basis, and direct support to help members obtain better value from their prescription drugs. In these ways we can put the consumer's interests first and begin demystifying prescription drug prices.
Bill Kampine is a health care economist and chief innovation officer of Healthcare Bluebook, which delivers health care value insights to consumers, employers and health care providers and payors.
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