Employers Prepare for 2017 Drug Price Hikes

Companies adopt strategies to manage prescription drug use and target costs

By Stephen Miller, CEBS Oct 17, 2016
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The cost of prescription drugs in group health plans continues to increase at double-digit rates, leading employers to adopt strategies to ensure that costly medications are used only when needed and to take other cost-containment steps.

Findings from HR consultancy Segal's 2017 Health Plan Cost Trend Survey show that for active employees and retirees under age 65, prescription drug costs are projected to rise 11.6 percent in 2017 for active employees, up from 11.3 percent in 2016.

The projected rise in specialty drug/biotech medications in 2017 continues to be exceptionally high 18.7 percent. While typically less than 1 percent of all medications are specialty drugs, survey respondents indicated that those drugs now account for 35 percent of total projected prescription drug cost increases for 2017, Segal found.

Projected Prescription Drug Costs: 2016 and 2017

drug-cost-trend-1cp.jpg

(click image to enlarge)

Source: 2017 Segal Health Plan Cost Trend Survey.


Nearly 100 insurance providers participated in the survey, which was conducted during the summer of 2016.

Similarly, specialty medications represent 35 percent to 40 percent or more of pharmacy-related costs for employers, according to HR consultancy Mercer. "While specialty biotech medications are therapeutic breakthroughs for chronic disease conditions like hepatitis C and multiple sclerosis, they come with a hefty price tag, costing as much as $80,000 or more per treatment," said David Dross, Mercer's managed pharmacy practice leader in Houston. For the entire U.S. health care market, specialty medication spending has nearly doubled since 2011, reaching more than $150 billion last year, he noted.

Rx Drug Strategies

"Given the increasing number of pharmaceutical products now available for conditions that require the use of specialty medications, plan sponsors are implementing strategies that manage patients who use these drugs" in an effort to ensure that these medications are used appropriately and to target unnecessary costs, said Edward Kaplan, national health practice leader with Segal in New York City. These strategies can include:

  • Use-management controls such as requiring prior authorization before a prescription can be filled.

  • Formulary changes to promote the use of lower-cost alternative drugs.

  • Step therapy that requires lower-cost drugs be tried before authorizing higher-cost alternatives.

  • Tiered co-payment structures that increase employee cost-sharing for high-priced specialty medications.

  • Negotiating aggressive specialty drug contracting terms with pharmaceutical companies and pharmacy benefit managers.

Health Plan Costs

Segal also found that health plan cost trends have slowed but continue to outpace inflation and average wage increases more than threefold. While prescription drug costs are projected to rise 11.3 percent in 2017 (the combined average for active employees and under-65 retirees), open-access preferred provider organization (PPO) and point of service (POS) plan costs are expected to increase by 7.8 percent, while wages are projected to rise by just 2.5 percent.

Comparison of Costs Trend Rates: 2014-2015 Actual and 2016 Projected
(For active employees and retirees under age 65)

drug-cost-trend-2cp.jpg

(click image to enlarge)

Source: 2017 Segal Health Plan Cost Trend Survey.


"Plan sponsors will need to apply cost-management strategies to bring trends down to more sustainable levels," Kaplan said. "Each plan sponsor has a unique set of goals and cost drivers, so strategies will vary. The best strategies will directly address plan design, aggressive vendor contracting and measurable population health improvement."

Related SHRM Articles:

Rx Drug Plans Shift Costs to Employees, SHRM Online Benefits, July 2016

Manage Specialty Drugs to Stem Pharmacy Costs, SHRM Online Benefits, April 2015

Related Resources:

Infographic: Price Inflation and Specialty/Biotech Drugs Drive Health Plan Cost Increases, Segal Consulting, November 2016

Insight Brief: Examining high prescription drug spending for people with employer sponsored health insurance, Kaiser Family Foundation and Peterson Center on Healthcare, October 2016

Trends in Prescription Drug Benefits, United Benefit Advisors, July 2016

Value-based Purchasing: Pharmaceutical Management, National Business Group on Health, August 2014

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