As Specialty Drug Costs Bite, Employers Have Options

Nov 13, 2019

A new study has found that while group health plan costs will continue growing at the same rate as in the last few years (about 4% a year), the increases would be far less were it not for the spiraling costs of high-cost specialty prescription drugs. 

The 2020 “Segal Health Plan Cost Trend Survey,” which polled health insurers, third party administrators, pharmacy benefit managers (PBMs) and other payers, found that chemotherapy drugs and other specialty pharmaceuticals are having an outsized effect on overall health claims payments.

Unfortunately, this is forcing plan sponsors to figure out how to balance coverage of life-saving drugs with plan affordability. But there are steps you can take to rein in drug cost inflation.

Payers expect that pharmaceutical costs will increase by 7.1% in 2020 from this year and that the cost of specialty drugs will double that inflationary rate at 15.4%.

Rebates account for a significant part of the pharmaceutical equation. Survey respondents said that they expect the average impact of rebates would reduce overall drug price inflation by about 1.5%.

The rising cost of brand-name drug expenditures is due to drug price inflation primarily, although one-third of the increase is due to more prescriptions being filled.

Other findings in the report by Segal, a health and retirement consulting firm, are:

  • Price increases are the primary driver of medical and drug trends.
  • Double-digit specialty drug costs are mostly driven by price increases and the introduction of new and more expensive drugs.
  • Reimbursement rates for hospital networks are projected to increase at a higher rate than physician claims.
  • Plan cost trends continue to outpace both inflation and wage growth by a factor of more than two.

The study notes that projected costs in earlier surveys have always been lower than actual inflation of medical treatment and drug outlays. To deal with these increasing costs, Segal identified the top health plan cost-containment strategies that are in use in 2019:

  • Use of health care transparency tools.
  • Expanding pharmaceutical management for non-specialty drugs.
  • Expanding pharmaceutical management for specialty drugs.
  • Offering telehealth/virtual care.
  • Value-based contracting. 

What you can do

Segal recommends the following tactics for managing drug benefit costs, as well as for contracts with PBMs:

Aim for innovative contracting with PBMs ― Hold PBMs contractually accountable for controlling costs. Contract terms can include unique specialty-drug pricing guarantees, performance-based rebates, direct contracting with regional specialty pharmacies and adoption of value-based formularies.

Expand clinical checks ― Amend plan terms to include clinical safeguards like step therapy, targeted prior authorization for high-cost services and quantity-duration limits based on Food and Drug Administration guidelines.

Plan benefit design ― Use benefit designs to increase the use of generics and lower-cost brand-name drugs, in order to help manage drug cost inflation. This can include the use of tiered designs which place clinically effective, lower-cost drugs into lower tiers at lower cost-sharing. 
Also, more plan sponsors that charge drug coinsurance offer point-of-sale rebates that lower participants’ out-of-pocket expenses.

Auditing ― Conduct periodic audits of your PBM and carefully evaluate drug classification against contract terms and pricing guarantees. This is important because some PBMs continue to apply complicated pricing reclassifications that can increase your costs.