17 Ways Employers Are Combating Prescription Drug Costs

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

The 2018 Employee Benefits Survey provides benchmarking data on the methods used to combat these escalating 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%).

17 Ways Employers Are Combating Prescription Drug Costs

Cost-Sharing Initiatives

Responding organizations use a number of cost-sharing initiatives to ease the burden of rapidly escalating costs.

  • Tiered cost-sharing plans are common, offered by 92% of responding organizations. Three-tiered systems, offered by one-half (50%) of responding organizations, typically have one cost-sharing level for generic drugs, a higher level for preferred brand-name drugs and an even higher level for nonpreferred brand-name drugs. It’s common for survey respondents to have four (35.3%) or even five (6.7%) tiers for prescription drug cost sharing.

Coverage/Limits by Drug Type

Survey respondents also employ a diverse range of strategies to limit the use of certain drug types.

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  • More than seven in ten responding organizations (70.9%) use a drug formulary. A formulary is a list of medications covered by the plan and typically includes drugs that are considered the most effective and economical.
  • One-half of respondents use step therapy (50%), which requires a beneficiary to use the most cost-effective treatment before proceeding to those that are more expensive or are riskier to use.
  • To reduce plan costs, two in five responding organizations (39.4%) promote the use of generic drugs via financial incentives.
  • More than one in three plans (36.3%) take this concept a step further and mandate the use of generic options. This practice is more common among multiemployer plan respondents.
  • More than one in five responding organizations (20.9%) place specific limits on specialty and biotech drugs. Specialty drugs are high-cost medications that treat complex and rare medical conditions and include biotech drugs or biologics, which are produced using living organisms such as yeast, bacteria or human cells.
  • A similar percentage (20.5%) limit or do not cover lifestyle drugs, which are not considered medically necessary and target conditions such as 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.
  • A small proportion of respondents cover select over-the-counter (OTC) drugs (13.4%).
  • An even smaller proportion 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.

Drug Access Controls

Responding organizations employ a range of drug access controls to control plan costs.

  • A large majority of respondents offer a mail-order drug service (85.3%) to reduce prescription drug costs, focusing particularly on long-term drug therapies.
  • Less than half (47.8%) use prior authorization or utilization management and preferred provider networks (38.7%). In these arrangements, a preferred provider accepts predetermined fees for covered products and services, and patients receive incentives, such as smaller deductibles and other cost-sharing arrangements, to use them.
  • About one in four responding organizations (23.5%) has a drug card program. Drug card programs provide participants with identification cards that entitle them to receive medications as covered payments through a participating pharmacy and are more common among multi-employer plan respondents.
  • One in seven survey respondents (14.4%) has 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%). This practice, in which prescriptions are filled on a split or partial basis to avoid waste and reduce costs, is more commonly utilized by multiemployer plans.
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Purchasing/Administration Initiatives

Finally, organizations have various prescription drug purchasing and administrative initiatives.

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

Learn More About Prescription Drug Benefits

The International Foundation report, Employee Benefits Survey: 2018 Results, examines the entire spectrum of benefits today’s employers are providing.

Justin Held, CEBS
Justin Held, CEBS
Senior Research Analyst at the International Foundation

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