Why Do Pharmacy Benefits Costs Continue to Rise?

Employers are keeping a close eye on the rising cost of pharmacy benefits.

Nationwide, employers’ prescription drug costs for active employees and retirees under age 65 increased 11.3 percent in 2016 and are projected to increase 16 percent in 2017, according to the 2017 Health Plan Cost Trend Survey from Segal Consulting.

National CooperativeRx recently examined these rising costs in a Pharmacy Benefits Brief that was shared at recent CEO Roundtables hosted by The Alliance. National CooperativeRx and The Alliance have a strategic partnership that dates back to 2002, when The Alliance helped found the pharmacy benefits management cooperative.

Factors that contribute to rising costs can be separated into five groups.

Lifestyle Factors

Aging Population.

People are living longer, and those over age 65 cost three times more than those under age 65.

Poor Personal Health Care Choices.

The United States spends the most on health care, but ranks last in health status compared to other nations, which adds towards drug costs.

• Obesity (35.7% of adults): With obesity-related conditions ranked as the second leading cause of preventable death in the U.S., it is no surprise that obese people spend 42 percent more on health care than people with a normal body weight.
• Excessive alcohol consumption (18% of adults): The Centers for Disease Control and Prevention estimates that 88,000 Americans die of binge drinking each year and the cost adds up to approximately $249 billion.
• Tobacco use (17.8% of Americans): Smoking is the leading cause of preventable death in the U.S. The total cost of smoking adds up to over 480,000 deaths and more than $300 billion annually.
• Medication nonadherence: The Pharmaceutical Research and Manufacturers of America reports that up to 20 percent of those with chronic conditions are non-adherent to their medications, which includes not filling a prescription or taking less than the intended dose. These actions result in losses of $100 billion to$300 billion per year.

Price and Inflation

• Double-digit annual price increases are not uncommon for brand name drugs.
• While rebates used to represent 3 percent to 5 percent of drug spend, they now represent upwards of 15 percent to 20 percent of drug costs.
• The pricing of new drugs is often based on what the market will bear instead of value.
• Consumers may be making decisions that are in their best interest but not your plan’s.

Specialty Drugs

• Drugs in this category are typically very expensive and require special handling and administration. The cost of specialty drugs has been rising at an astonishing rate due to various reasons.
• Specialty drugs are targeted to a specific patient population.
• There is a lack of lower-cost treatments available to these patients due to the complexity of their illness.
• A larger portion of the population is contracting diseases which are treated with specialty drugs.
• The Food and Drug Administration (FDA) is expected to approve an additional 200 specialty medications between 2017 and 2018.

Lobbying and Advertising

• The Pharmaceuticals/Health Products industry spent $14 billion on lobbying, advertising and copay card programs just in 2016.

Research and Development (R&D)

• The U.S. bears much of the world’s R&D costs.
• More therapies are now available for previously untreatable conditions, most of them being specialty drugs.
• Reformulations of existing drugs have been created for convenience. For example, a once-a-day pill that is now available as a once-a-week pill or an injectable that can now be taken as an oral supplement.

Pharmacy Benefits Brief Offers Solutions

So what’s an employer to do? Download the full brief from National CooperativeRx for more information and ideas about what employers can do to help contain costs.