Strategies for Controlling Prescription Drug Costs

Benefits practitioners have grown accustomed to headlines addressing escalating prescription drug costs. A recently released congressional report stated that the prices of commonly prescribed brand-name drugs have risen at a rate of nearly ten times the annual rate of inflation over the past five years.

The 2018 Employee Benefits Survey provides benchmarking data on the methods employers are using to combat escalating prescription drug costs, including cost-sharing initiatives, limits by drug type, drug access controls, and purchasing and administration initiatives. Nearly all (97.6%) organizations responding to the survey offer prescription drug benefits, either as part of their health plan (83.1%) or through a separate plan (14.5%).

Strategies for Controlling Prescription Drug Costs

Here Are the Strategies Employers Are Using to Contain Prescription Drug Costs

Cost-Sharing Initiatives
  • Tiered cost-sharing networks are common, offered by 92% of responding organizations. In three-tiered systems (50%), there is typically one premium level for generic drugs, a higher level for preferred brand-name drugs and an even higher level for non-preferred brand-named drugs. It’s common for survey respondents to have four (35.3%) or even five (6.7%) tiers for prescription drug cost sharing.

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Coverage/Limits by Drug Type
  • More than seven in ten responding organizations (70.9%) use a drug formulary. A formulary is a list of medications covered by the plan, typically comprising of drugs that are considered the most effective and economical.
  • One-half of respondents use step therapy (50.0%), which requires a beneficiary to try the most cost-effective treatment before proceeding to those that are more expensive or difficult to use.
  • Two in five responding organizations (39.4%) promote the use of generic drugs via financial incentives.
  • More than one in three plans (36.3%) mandate the use of generic options.
  • More than one in five responding organizations (20.9%) place specific limits on specialty and biotech drugs.
  • A similar percentage (20.5%) limit or do not cover lifestyle drugs, which target conditions that are not considered medically necessary, such as treatments for obesity, infertility or cosmetic issues.
  • More than one in six (17.5%) responding organizations utilize preferential pricing agreements, which are negotiated directly with pharmacies or manufacturers.
  • Smaller proportions cover select over-the-counter (OTC) drugs (13.4%) or utilize reference-based pricing (6.5%). In this scenario, the price or reimbursement level of a specific drug is set by drug group or class.

Methods for Limiting Use of Certain Prescription Drug Types

Drug Access Controls
  • A large majority of respondents offer a mail-order drug service (85.3%). In these systems, drugs are distributed through the mail with the intention of reducing prescription drug costs, particularly long-term drug therapies.
  • Less than half (47.8%) utilize prior authorization or utilization management (47.8%) and preferred provider networks (38.7%). In these arrangements, a preferred provider accepts predetermined fees for covered products and services, while patients are incentivized to use them through smaller deductibles and other cost-sharing arrangements.
  • About one in four responding organizations (23.5%) have a drug card program, defined as the use of an identification card that entitles a patient to receive medications as a covered benefit through a participating pharmacy.
  • One in seven survey respondents (14.4%) have access to an on-site or near-site pharmacy, a benefit more common in larger organizations.
  • Less often, respondents offer split or partial fill strategies (7.4%).

Prescription Drug Access Controls

Purchasing/Administration Initiatives

  • About two in three respondents (65.2%) utilize a pharmacy benefit manager (PBM). These organizations manage pharmacy benefits for a plan sponsor and develop drug formularies and drug utilization reviews to reduce plan costs.
  • One in ten responding organizations (9.6%) are part of a collective purchasing group. These groups use their collective power to obtain products at a significant cost savings.

Want to Learn More?

Find the full details on prescription drug costs, plus much, much more, in Employee Benefits Survey: 2018 Results.

Justin Held, CEBS
Senior Research Analyst at the International Foundation


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Justin Held, CEBS

Senior Research Analyst at the International Foundation Favorite Foundation service: Research Surveys Benefits related topics that interests him most: Health care economics, the Affordable Care Act, apprenticeship training Favorite Foundation Conference Event: Lowell Catlett’s economic updates Personal Insight: Justin loves everything baseball, visiting and checking off ballparks as he travels. He can shake any bad mood caused by a Brewers’ loss by going for a good long run.

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