“Prescription drug benefits used to be considered a side cost to
overall employee health benefits,” says Hector De La Torre, executive director of the nonprofit Transamerica Center for Health
Studies in Los Angeles. Now, they are one of the top three most
expensive essential health benefits, right alongside ambulatory
patient services and hospitalization.
A closer look at specialty drugs—medications used to treat
such serious, complex conditions as cancer and multiple sclerosis—shows why. Their per-unit cost is rising substantially, due in
large part to the high cost of research and development. So too is
the rate at which they are being prescribed, perhaps because of
the prevalence of chronic conditions in the aging U. S. population.
“Costs for specialty pharmaceuticals are increasing 21 percent
per year, compared to 4 percent for traditional pharmacy,” says
Steve Wojcik, vice president of public policy at the National Busi-
ness Group on Health in Washington, D.C. And more medications
are yet to come. “The specialty drug pipeline is big, and new drugs
are coming out fairly quickly—over half of all U. S. Food and Drug
Administration (FDA) drug approvals are for specialty drugs.”
Large jumps in the price of pharmaceuticals are not necessar-
ily new. In the past, big cost increases were driven by traditional
brand-name blockbuster drugs. However, the spikes were fol-
lowed by some relief as those products’ patents expired and much
cheaper generic versions became available, helping to offset
the growing costs of specialty medications.
Unfortunately, few experts expect the same sort of return
on generics to continue in the near future. “Most of the savings from those blockbuster generic drugs has now been
realized,” says Keith Bruhnsen, assistant director of benefit
administration for the University of Michigan.
Inefficiencies and problems in the specialty market may
also exacerbate price spikes. “The trend in pharmaceuticals
spend is frankly not acceptable; it is higher than it should be,”
says Michael Thompson, president of the National Alliance
of Healthcare Purchaser Coalitions in Washington, D.C.
“There is concern that the market itself is dysfunctional,
with a lack of transparency and high variation in prices”
depending on where the drug is purchased and administered.
HR leaders at companies that sponsor employee health
plans may feel helpless in the face of such daunting market
trends, but there are some proven strategies you can pursue
to control the cost of prescription drugs.
How to Cope
Managing the cost of prescription programs is challenging
and requires specialized expertise. Many larger employers
opt to separate these programs from the overall health plan
to enable pharmacy benefit managers (PBMs) or other consultants to closely monitor and manage expenses. A growing
number of companies are further carving out their specialty
drug programs so that they can be handled under the aegis of
specialty pharmacies, specialized PBMs and other vendors.
HR professionals from smaller organizations that con-
Consider Design Options
tract with insurance companies to operate their health plans,
including prescription benefits, have fewer options. But they
can still apply pressure to carriers by asking them what steps
they are taking to hold down expenses. Another way to gain
more leverage in the pharmaceutical marketplace is by joining
a regional health care purchasing coalition—possibly leading to
opportunities to carve out those benefits for closer management.
Most benefits administrators have already redesigned their
companies’ prescription plans to create financial incentives for
employees to choose the least expensive products. A common
method for doing that is by offering different levels of coverage for various medications. For example, one tier may provide
full payment for generics and drugs for chronic conditions such
as diabetes. Similarly, another level for specialty biologic drugs
(complex medications that are manufactured in a living system such as a plant or animal cell) could create an incentive for
patients to seek out less costly biosimilar treatments by offering
a higher level of coverage for them. Biosimilars closely resemble
but are not exactly the same as existing FDA-approved biologics, and studies show no meaningful differences between them.
Subsequent tiers would follow, with increasing levels of co-payments or co-insurance based on various factors such as the
drug’s proven effectiveness and the nature of the condition being
Specialty Drugs—A Closer Look
Specialty pharmaceuticals, including those derived from living cells or organisms (referred to as “biologics”), are much
more complex than traditional prescription drugs, both in their
makeup and in how they are administered to the patient. These
• Often must be injected or infused in a health care setting,
whether at a doctor’s office, clinic or hospital, with follow-up
care and monitoring also necessary.
• Are used to treat complex, often chronic conditions, including certain types of cancer and multiple sclerosis, for which
there are few if any other treatment options.
• Are expensive—very expensive. A single dose can cost
hundreds if not thousands of dollars.