Prescription Drug Prices Are on the Rise. How Can Employers Manage?

​Employers would be forgiven for suffering a bit of sticker shock when it comes to the rate at which prescription drug benefits costs are rising. Research conducted by professional services firm PwC found that the median annual price for new drugs increased from $180,000 in 2021 to $222,000 in 2022, a whopping 23 percent rise.

To be sure, there are plenty of new blockbuster drugs, including Ozempic and Wegovy, grabbing the headlines thanks to both their cost and their potential to help patients lose weight. There are also potentially life-changing but extremely expensive new gene therapies coming on the market, including Hemgenix ($3.5 million per dose) to treat hemophilia B and Skysona ($3 million per infusion) to treat a rare genetic condition called cerebral adrenoleukodystrophy.

Meanwhile, the trend line for prescription drug costs that are already on the market continues to go up. Prices for existing drugs were up more than 25 percent from 2021 to 2022.

"To provide some context for these numbers, consider that if the price of gasoline increased as fast as that of prescription drugs over the last 10 years, it would now cost $11 a gallon," said Rick Kelly, senior vice president of employee health and benefits at Marsh McLennan Agency.

While this data paints a grim picture of future prescription drug costs, there are still opportunities to manage these costs more effectively, analysts said.

"This is both an intimidating time and an exciting opportunity for cost management," said Brad Sherry, vice president at Iselin, N.J.-based brokerage firm World Insurance Associates LLC.

Here are some ways employers can get started.

Leverage Technology to Increase Employee Understanding and Compliance

Controlling prescription drug costs starts with employees. After all, even the best plan design is unlikely to achieve its promise if employees do not understand it, do not comply with drug regimens or do not take their prescriptions correctly.

"When the prescription drug plan changes, make sure employees understand it well enough to change their behavior," Kelly said.

That includes finding out if there are lower-cost alternatives and seeking them out. This is where apps and other technology can help. For example, apps can provide alerts and prompts when drug prices increase so that patients can discuss the situation with their doctor to see if a less-expensive alternative is available.

Ensuring that everyone covered under the health plan adheres to care plans and drug therapy requirements also is essential. Poor compliance with drug regimes not only increases plan costs, but it also endangers patient health.

"Employers can leverage tools that can measure compliance with care plans, such as through mobile or digital apps, to help assess and report on the use of such expensive drugs," said Dinesh Sheth, CEO and founder of benefits technology firm Green Circle Life. "When significant spending is necessary for employees' well-being, HR managers must look at ways to improve success and measure outcomes that justify the costs."

Manage Plans Carefully

Employers have opportunities to improve cost management. Those with self-funded health benefits have opportunities to negotiate contracts, articulate what should be included on the drug formulary and what restrictions to impose, and look for ways to maximize rebates from drug manufacturers, Sherry said. Smaller and fully insured employers will have to rely on their health insurance carriers to manage the formulary and tighten authorization requirements so that only those who truly need specific drugs will be able to get them.

Steering patients to biosimilar drugs and less-expensive generic drugs that provide the same clinical effect, when appropriate, can also help control costs, as long as employers do so intelligently.

"The knee-jerk reaction is to go cheaper," Sherry said. However, rebates for brand-name drugs can sometimes be large enough to replicate or exceed any savings from switching to a lower-price alternative. Therefore, employers should be focusing on both the net cost of the drug and whether it is the best clinical choice for the patient.

Overall, employers should be as open as possible to potential changes to their prescription drug benefits. Most employers care about their employees, which makes them cautious about implementing something different. However, Kelly offered a different perspective on change.

"Every year, there is disruption in prescription drug plans because PBMs [pharmacy benefit managers] change the formulary every year," he said. "It is possible to apply the same level of disruption to help employees and the plan in the face of cost pressures."

Find the Right Partners

The right partners can also help employers manage prescription drug benefits more effectively. That is why it is important for employers to make sure that the priorities of those partners, including PBMs, are aligned with the employers' goals.

For example, an insurer offering a smaller employer a fully insured prescription drug plan will be more focused on protecting the formulary from rising costs. However, it is also important that obtaining any prior authorization or going through required clinical steps before covering a drug is completed as efficiently as possible and is not disrupting the patient's clinical care and treatment timeline.

Prescription drug benefits do not have to be a take-it-or-leave-it proposition. "There are interesting ways to save on future [prescription drug] spend by negotiating directly with PBMs," Sherry said. With new entrants in the PBM marketplace, "it is time to look outside of the big PBMs."

Take Advantage of Disruptions to the Status Quo

The prescription drug benefits market is ripe for disruption as new entrants enter the PBM space and supporting technology improves. Smart employers will be aware of this and look for opportunities to exploit the resulting changes.

For example, one of the most important developments in the prescription drug market is the U.S. government's decision to negotiate prices for certain drugs covered by Medicare.

"If the federal government pays a price that is lower than what is available in the commercial market, there will be an opportunity for employers to push back and get a better price," Sherry said.

On the clinical side, pharmacogenetic testing is helping match patients with the medication to which they are most likely to respond. This approach not only has the potential to reduce costs and the number of ineffective treatments, but it can also improve patient outcomes by putting the most effective drug to work as quickly as possible.

Joanne Sammer is a freelance writer based in New Jersey.