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April, 2015

How employers can battle double-digit Rx cost increases

Benefitnews — April 20, 2015 

Employers are bracing for double-digit pharmacy cost increases in the next year, but advisers can help them to take steps now to mitigate those cost increases for both their active and pre-retiree populations.

Aon Hewitt estimates pharmacy cost increases before plan design changes are projected to be 9.5% in 2015, 10% in 2016 and 10.5% in 2017. This follows recent years that saw a flat or very low single digit increase, says John Malley, leader of Aon Hewitt’s innovation pharmacy team.

To overcome the increase, Malley says employers should look at generics, multi-month prescriptions and embracing strategies around specialty drugs where prior authorization takes place. Also, he says, make sure the person is on the right drug for the right disease. “You’d be surprised at the number of clients who were not prepared for that particular part of the drug benefits,” he says.

Aon Hewitt estimates about 50% of specialty drug costs are paid under the medical benefit, and total therapy costs for a given specialty medication may vary significantly based on site of care. Conducting a site of care analysis may identify opportunities to save cost, the consultancy notes.

Meanwhile, pharmacy rebates have increased significantly over the last couple years, Aon Hewitt found. As a result, employers should conduct regular rebate reporting and evaluate market competitive pricing to ensure current pricing terms remain competitive.

Employers should also talk with their PBM and discuss health economics and outcomes research “to select the appropriate conditions driving their costs and select treatments that drive optimal clinical and economic value,” adds Nicole Hengst, PBM research director at Health Strategies Group.

Cost increases

The expected increases are a result of the introduction of some new specialty products to the market last year, the utilization of those products and the “entire growth of the pipeline and everything that has hit in that specific area,” Malley says.

The other contributor, he adds, is the fact that the generic drug pipeline is “drying up,” as less and less brands lose their patents. In 2015, the generic drug cost rate was a positive number — usually it is a negative number, he says.

Hengst says the increase is a not a surprise given the growth of specialty products. “As the mix of specialty products continues to represent a larger share of the total, the annual percentage change will be higher,” she says. “The key question is how the percent change in pharmacy impacts the total health care costs.”

In its analysis, Aon says low medical costs are expected to mitigate some of the higher pharmacy costs. Those cost increases are projected to be 4.5% in 2015 and 5% in 2016, bringing the total projected combined medical and pharmacy cost trend for active and pre-65 employees to 5.4% in 2015 and 5.9% in 2016.

Before conducting the analysis, Malley expected the number to be slightly worse. “As I work with clients on an individual basis, and it varies from client to client, some clients are really struggling around this whole specialty thing — representing 30%-35% of their drug spend and growing at a very fast rate.”

“I thought it could be higher,” he adds. “It almost sounds crazy to say, but 10% is probably good news because it does mean in my mind, certain employers are embracing strategies to control this.”

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