Employers Spend More of Health Budgets on Drugs

2015 is “an excellent time to negotiate aggressive renewals” and conduct competitive bidding

By Stephen Miller, CEBS Mar 2, 2015
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Among U.S. employers providing health benefits, 77 percent spent 16 percent or more of their total health care budget on prescription drugs for their employees in 2014 (up from 71 percent in 2013), with nearly 5 percent of employers spending more than 30 percent on prescription drugs (up from 2.3 percent), according to the fifth annual Prescription Drug Benefit Survey by Buck Consultants at Xerox.

These results indicate why employers should look to spend their pharmacy dollars more effectively. For example, Buck consultants recommend that plan sponsors take advantage of current marketplace conditions “which make 2015 an excellent time to negotiate aggressive renewals,” according to the report. Plan sponsors also can conduct competitive bidding among pharmacy benefit managers to achieve optimal pricing terms and to improve contract provisions affecting their plan’s financials and service levels.

For employers that provide coverage to Medicare-eligible retirees, the report recommends that plan sponsors consider a Centers for Medicare and Medicaid Services (CMS) 800 Series Employer Group Waiver Plans instead of the Medicare Part D retiree drug subsidy, since the latter is no longer tax-exempt.

“With specialty drug costs showing no signs of decreasing, we could easily see the average percentage of spending by employers for pharmacy benefits increase from 15 to 20 percent” of their total health care spending, said Paul Burns, a principal at Buck Consultants at Xerox, in a news release accompanying the report. “Developing a realistic strategy to cover medications is critical to meeting an employer’s budgetary needs. This requires a comprehensive review of all available options for plan design, coverage rules and clinical programs.”

Specialty Drug Expenses

The average cost of a month’s supply of a specialty drug exceeds $2,500, and the annual cost for a course of treatment can be $75,000 or more, the researchers found. Despite these costs, 22 percent of respondents do not know the portion of their overall drug spending attributed to specialty medications.

To manage specialty therapies, however, 77 percent of responders use management programs such as requiring prior authorization before a prescription is filled—indicating that most plan sponsors understand the importance of using controls to help manage specialty drug costs.

“Considering the importance of managing specialty drug therapies now and in the future, the percentage of employers not knowing their costs is too high,” said Burns. He recommended that “employers analyze specialty drug costs and utilization patterns under both the pharmacy and medical benefits to get a better pulse on this spending. The ability to identify spending under the medical benefit, where 50 percent of specialty drug utilization occurs, is critical to gaining a complete understanding of the impact these medications are having on costs.”

The 170 U.S. organizations that participated in the survey constituted a broad range of industries and represent approximately two million covered lives.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related SHRM Articles:

Drug Plan Cost Rise Outpaces Health Benefits, SHRM Online Benefits, October 2014

Co-pays and Deductibles Up Sharply for High-Cost Drugs, SHRM Online Benefits, March 2014

Steps for Managing High-Cost Specialty Drugs, SHRM Online Benefits, October 2013

Employers Act to Control Prescription Drug Spending, SHRM Online Benefits, June 2013

Specialty Drugs Driving Pharmacy Benefit Costs, SHRM Online Benefits, April 2011

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