Benefits practitioners have grown accustomed to headlines addressing the escalating costs of prescription drug spending. Despite concerted efforts, the cost of commonly prescribed brand-name drugs continues to grow at alarming rates.
A recent study from the University of Pittsburgh stated that over the past decade, brand-name drug prices rose three times faster than the rate of inflation.Looking forward, the Centers for Medicare and Medicaid Services (CMS) projects that in the next five years, prescription drug spending will grow at an average rate of 4.8%.
The 2020 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. Here are some prescription drug cost-containment considerations for your plan:
- Tiered cost-sharing plans are common, offered by 83% of responding organizations. Three-tiered systems, offered by one-half (52%) 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 also possible for survey respondents to have four (26%) or even five (5%) levels.
Coverage/Limits by Drug Type
- About four in five organizations (79%) use a drug formulary, a list of medications covered by the plan and typically includes drugs that are considered both the most effective and economical.
- More than one-half of respondents use step therapy (53%), which requires a beneficiary to use the most cost-effective treatment before proceeding to those that are more expensive or are riskier to use.
- Two in five responding organizations (38%) promote the use of generic drugs via financial incentives. A similar proportion (37%) take this concept a step further and mandate the use of generic options.
- More than one in four responding organizations (27%) place specific limits on specialty and biotech drugs.
- One in six (17%) responding organizations cover select over-the-counter (OTC) drugs as a cost-containment measure.
- A similar percentage (13%) 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 ten (11%) responding organizations utilize preferential pricing agreements, which are negotiated directly with pharmacies or manufacturers.
- Smaller proportions or use reference-based pricing (5%). In these scenarios, the price or reimbursement level of a specific drug is set by drug group or class.
Drug Access Controls
- A large majority of respondents offer a mail-order drug service on either an optional (74%) or mandatory basis (12%) to reduce prescription drug costs, focusing particularly on long-term drug therapies.
- More than half (53%) use prior authorization or utilization management.
- Two in five (41%) employ preferred provider networks. 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.
- 16% have 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 multiemployer plan respondents.
- 10% 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 (9%). 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 and public sector plans.
- More than three in five respondents (63%) contract with pharmacy benefit managers. PBMs manage pharmacy benefits for a plan sponsor and develop drug formularies and drug utilization reviews to reduce plan costs.
- Less than one in ten responding organizations (9%) is part of a collective purchasing group. These groups use their collective power to obtain products at significant cost savings.
Prescription Drug Cost-Containment in Your Plan
Results from the 2020 Employee Benefits Survey scratch the surface of the methods that organizations are using to control the escalating cost of prescription drug offerings. What are some new strategies you want to look into implementing for the benefit of your plan and its members? Let us know in the comments below!
[Related Reading: Health Care Benefits: 20 Benchmarking Considerations for Your Plan]
Justin Held, CEBS
Senior Research Analyst at the International Foundation
The latest from Word on Benefits:
- Where We Are Now: Special Financial Assistance Under the American Rescue Plan Act
- Education Benefits for Recruiting and Building Talent
- It’s Coming—The End of the COVID-19 Emergencies
- Legal & Legislative Reporter: Third Party Administrator Liable for Violation of ACA Antidiscrimination Provision
- Rethinking Gender: How Benefit Plans, Sponsors and Trustees Can—And Must—Adapt