In 2018, American consumers spent $535 billion on prescription drugs and spending was projected to reach $584 billion dollars in 2020. The average American spends approximately $1,200 a year on prescription drugs, and this number increases every year.
In 2019, a team from Scripps Research Translational Institute reviewed tens of millions of insurance claims for the most popular brand-name prescription drugs and found that net prices rose by a median of 76 percent from January 2012 through December 2017 – with most products going up once or twice per year.
According to a July article in Healthcare Finance, specialty drugs continue to drive price increases, with a projected 4.47 percent inflation rate for specialty drugs, plus an ongoing surge in demand for specialty pharmaceuticals during the pandemic.
Patients with chronic or severe medical conditions can pay $50,000 or more per month for specialty drugs to treat conditions such as rheumatoid arthritis or cancer.
If you are an employer trying to find ways to reduce your health plan drug costs, it’s easy to feel like your hands are tied, but you can still lower your drug spend if you understand how the pharmaceutical industry sets drug prices and educate your employees to be savvy consumers
Understanding Drug Prices
There are three basic categories for prescription drugs—generic, brand-name and specialty—and the prices vary depending on a number of factors including manufacturing costs, availability and specific uses.
Specialty drugs are the most expensive category. They are used to treat chronic or severe medical conditions, such as rheumatoid arthritis or cancer, and are obtained in one of two ways—medication is either dispensed in a medical setting or purchased at a pharmacy and self-administered.
It is less expensive to self-administer specialty drugs, but some medications must be administered only in a medical setting. Some treatments can cost 28 to 53 percent more when they are administered in a medical setting because the medication is billed at a hefty reprice and the facility tacks on additional fees. Nearly all healthcare systems operate under this model, so there is very little an employer can do to mitigate the costs in this scenario.
Brand-name drugs are the next most expensive category. When a new drug is brought to market, the manufacturer who developed it is granted a patent and exclusive right to sell the drug. These drugs are sold at a premium price. An example of a brand-name drug is Glucophage, a treatment for type 2 diabetes that has an average retail price of $82.
Generic drugs are the least expensive category, but they are exact copies of brand-name drugs with the same benefits and side effects. When a drug patent expires, other manufacturers can apply to the Food and Drug Administration (FDA) for permission to make and sell a generic version.
The FDA requires generics to be as safe and effective as brand-name drugs, but because these manufacturers don’t incur the costs related to developing the drug, they can often produce and sell the drug cheaper. For example, the generic version of Glucophage is metformin, which has an average retail price of $18.
You can help lower your prescription drug spend through consumer education about prescription pricing.
Teaching Employees to Be Savvy Consumers
Teaching employees how to make good buying decisions helps them keep money in their pockets and reduces your costs as well. Training for all employees should include education about your plan and how to best use the pharmacy benefits, but you will also want to highlight these tips to help keep costs down.
- Always ask if there is a generic version when a doctor prescribes a brand-name drug.
- Shop pharmacies carefully. Prices for filing prescriptions are not the same for all pharmacies. Your broker can help you find the lowest cost locations in your network.
- Ask questions about the recommended treatment. What are the short-term and long-term side effects? How long will you be on the medication?
- Understand some plans use a step therapy program to try less expensive treatments before authorizing the most expensive option.
Controlling your health plan’s pharmacy spend is a team effort. Employers who take the time to educate employees to be savvy pharmaceutical consumers will benefit from shared knowledge.
More Tips for Controlling Costs
If you’re looking for more ways that you and your employees can help control the costs of healthcare, check out or complementary guide below.
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