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Prescription drugs are often singled out for blame on the rising cost of health care. Do the critics have their facts right? And if so, what can employers and policymakers do about it?

Are Prescription Drug Costs Rising?

Prescription drug costs spiked in 2014 and 2015. They will continue to trend a percentage point or two higher than overall health care costs in coming years, according to Centers for Medicare and Medicaid Services (CMS) data analyzed by the Peterson-Kaiser Health System Tracker.

Factors driving recent increases include new brand name drugs as well as fewer drugs coming off patent, which means fewer and lower cost generics are entering the market.

PhRMA, the national trade association of the pharmaceutical industry, points out that prescription drugs account for 14 percent of overall health care spending. That’s a lower percentage than many might assume given how the press covers this issue.

PhRMA also says consumers’ failure to properly fill and use prescription medications wastes an estimated $213 billion each year.

What’s Being Treated?

Express Scripts data for 2016 shows that drug classes that lead pharmaceutical spending are used to treat or manage:

  • Diabetes
  • Pain/Inflammation
  • High Cholesterol
  • Attention Disorders
  • High Blood Pressure/Heart Disease
  • Asthma
  • Depression
  • Contraceptives
  • Heartburn/Ulcer Disease
  • Skin Conditions

Specialty drugs get a lot of attention, but their share of costs should be kept in perspective. Express Scripts’ data shows the $109 spent on diabetes per member per year tops the $61 spent on oncology or the $59 spent on multiple sclerosis.

That also shows why it can be helpful to address drug costs from a holistic, population health perspective.  Employers can likely benefit from weighing health plan design options, including wellness programs, that can be used to combat costly yet preventable conditions like type 2 diabetes and high blood pressure.

What Can Be Done about Prescription Drug Costs?

A Commonwealth Fund analysis focuses on the drivers of drug costs and potential solutions. The analysis recommends public policy changes that include:

  • Shorten the market-exclusivity period for certain expensive drug classes, including biologics. This would allow competition from generics to occur sooner.
  • Allow Medicare to negotiate with drug manufacturers directly under the Part D program.
  • Require transparency of information on drug prices and price increases, as well as comparative effectiveness, for providers, patients, plan sponsors and employers. When employers and employees don’t have information on drug cost and quality, they can’t act as true consumers to make decisions that move the market.

National CooperativeRx recommends banning direct-to-consumer advertising of drugs as a way to promote more informed consumers. The United States is one of just two countries that permit direct to consumer advertising of prescription drugs.

PhRMA also advocates public policy changes that include:

  • Streamlining FDA drug approval processes.
  • Encouraging plan sponsors to tie reimbursements to outcomes.
  • Making more information on out-of-pocket costs, quality and efficacy available to consumers.

What Is Likely to Happen Next?

A Kaiser Family Foundation poll in April 2017 found that majorities of Democrats, Independents, and Republicans support “lowering costs of prescriptions” as a top policy priority for President Trump and Congress.

Policy changes that promote price and quality transparency line up with other health care trends, including more use of high deductible health plans (HDHPs). Transparency also aligns with traditional political conservatives’ views that the free market, rather than government regulation, should drive industry reforms.

But the pharmaceutical industry has not yet been inclined to share its true costs of production or the reasons behind price increases. Getting that information may require government action.

For his part, President Trump recently released a draft executive order that directs a review of administrative rules and procedures. Titled “Reducing the Cost of Medical Products and Enhancing American Biomedical Innovation,” it appears to straddle the interests of industry and the interests of consumers. The order notes that its goal is to balance “the need to reward innovation and nurture a thriving American bio-pharmaceutical ecosystem with the need for achieving lower drug prices for Americans….”

The recent debate over repealing and replacing the Affordable Care Act (ACA) has brought the issue of high health care costs back to the forefront. Whether this new awareness of cost pressures creates enough incentive for Congress and the administration to take action, despite opposing pressure from the pharmaceutical industry, remains to be seen.




Health Policy




Health Policy
John Zordani

John Zordani
Guest Blogger, Associate at Michael Best Strategies

John was an associate with Michael Best Strategies and works closely with clients on government relations, strategy development, stakeholder engagement, and best practice analyses. John gained experience as an intern with Michael Best Strategies, providing assistance and research to the team regarding public policy strategy, lobbying, shared value consulting, and public relations. John is a graduate of the La Follette School of Public Affairs.

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