Five Pharmacy Drug Cost Containment Strategies for Your Health Plan

Prescription drug spending is up 5.7% to $370 billion and is projected to accelerate over the next decade. These runaway costs affect both the bottom line your organization and the health and wellness of your employees. As an employer in the US, you need pharmacy drug cost containment strategies for your health plan.

I recently joined Nelly Rose, NFP’s Vice President of Clinical Pharmacy, for a webinar that dives into this topic in more detail. Access the on-demand webinar here for insights and cost containment strategies.

Benefits and Pharmacy Drugs – an important slice of the Total Rewards Halo

It’s good at the outset to provide some context for our discussion. At First Person Advisors, we always use the Total Rewards HaloTM as a touchpoint – your organization and employee experience in the center of that halo, the various facets surrounding it and the communication strategy that surrounds and touch all of those various segments. In this conversation, we will zoom in on the Benefits portion of the Halo and within that segment, Pharmacy.


The Pharmacy Benefits Landscape

If you watch the evening news and pay attention to the ads, you may already know some of the drugs by name. What you may not know is the scale of the industry and its continuing impact on your benefits spending. New branded products are estimated to add $180 billion to pharmacy spend in the next five years. The predicted “Global Medicine Spend” by 2025 is $1.6 trillion. And of that spend, an estimated 60% of it will be for specialty medicines in the top ten developed markets.

Legislative Policy in the US: Could an International Price Index Stabilize Drug Prices?

As we’ve seen an increase in high-cost therapies and new novel agents, our government has taken some steps to tackle those high costs. COVID stepped into the breach for a moment, but these legislative actions have continued as attention, from a pharmacy legislation perspective, has moved on. There are two major factors at play in the US: innovation and private insurance. Compared to our neighboring developed countries (such as Canada), we are seeing higher prices comparatively. Essentially, we pay the price for innovation.

There are policies, some at a state level and others at a federal level, which are impacting prescription drug prices now and in the future. These policies include:

  • Financial transparency
  • Copay caps
  • Insulin copay caps
  • Anti-price-gouging statutes

Two key policies are the international pricing index and ‘penny pricing.’ The international pricing index, also called “The Best of Nations”, would cap Medicare part B prescriptions that are infused in doctors’ offices and level out pricing vis-a-vis the other 15 developed nations. Penny pricing affects access to life-saving drugs such as insulin and epi-pen, requiring certain federally qualified health centers to pass through discounts to their patients for them to receive those drugs for ‘pennies on the dollar.’

Prescription Drug Cost Trends and Drivers

The primary drivers in rising costs in our pharmacy benefit have been inflation and the drug mix. Inflation is driven by drug manufacturers and the drug mix reflects our increased reliance on specialty medicines in treatment. There are some ways you can manage those components, specifically market checks and annual price negotiations to avoid stale pricing. And, by looking at utilization or how many members are using these drugs, you can manage that cost with clinical programs, formularies or networks and utilization management rules, that guide patients to lower cost equivalents.

Previously I mentioned some of the big macro trends increasing costs with a particular focus on specialty drugs. One facet of this trend is the attention drug companies are giving to gene therapy and orphan drugs, extremely expensive therapies for ‘under-served’ illnesses. What is the impact when we look on a micro level, at a client company of a few hundred employees? It can be significant. One drug, although not high in utilization, could account for 50%, 60%, even 90% of your pharmacy spend. It’s eye-opening to note that specialty drugs over the past 14-years (to 2021) are up 384% in price.


From the above figure, you can see how while some drugs are low in prevalence, they can account for a large portion of your pharmacy spend.

Biggest Selling Prescription Drugs in 2021

If you’re developing pharmacy drug cost containment strategies for your health plan, it’s helpful to know the cost trends. What are the top ten biggest selling drugs of 2021? The trend is toward Cancer treatments, the prices of which are not getting lower. The other interesting thing to note is that of the non-cancer drugs in that top ten, they are almost all household names. Humera alone was a $20 billion drug in 2020.

Why are we seeing this trend of low prevalence/high cost? One reason is the incentives baked into the industry – orphan drugs (drugs intended to treat rare diseases) have more patent protection, greater cost guarantees and tax incentives. And, they go through a separate FDA process.

Rare conditions are not as uncommon as you might think. There are approximately 7,000 rare diseases and one in ten Americans have a rare disease (25-30M people). However, only 10% of rare diseases have an FDA-approved treatment. So, from a biotech and pharmaceutical business perspective, it’s an untapped market and one that will be attractive for some time. As a side note, cancer drugs fall in this category of orphan drugs.

What’s the cost? The average cost of an orphan drug is $140,000 per patient, per year. That’s the average. The top end of the spectrum for these drugs is $2.1 million. Million-dollar therapy is rare, but it’s an indicator of what this market looks like and could look like going forward. Of note, gene therapies are targeted therapies to a root cause – meaning it’s a one-time therapy that will not require a lifetime of treatment. These are popular and growing within oncology, ocular diseases and blood disorders. It’s difficult to put a sticker price on a curative therapy that is unproven or unknown in its total effectiveness.

Management Strategies

To the point, how can you improve employee benefits without just giving away money? Consider these five pharmacy drug cost containment strategies.

Negotiate with Drug Producers

One solution is to negotiate with the orphan drug producers and have performance strategies or value-based payment plans in place. These plans can cover you and your employee and share risk with the pharmaceutical manufacturer should the drug not produce its intended effect.

Examine Your PBM Relationship

Pharmacy Benefit Managers (PBMs) fall into four buckets: Carved-In Solutions, Consortium, Transparent and Fiduciary. Each solution has different tools in their toolbox with which they can create solutions for employers. PBMs have a strong profit motive, so it’s important to consider which arrangement can work for your employee population from a cost perspective, clinical perspective and patient adherence. Do you have a young population or an older population, for instance? Are you an IT group? As consultants that’s what we can do – find that match.

Address Formulary Management

Formulary management is sometimes handicapped by disinformation. Sensational news stories disparage PBMs or share cherry-picked stories of drugs being pulled out of benefit plans with no recourse. The reality is that PBMs are increasing the number of new drugs available: new therapies, generics, competitors – in the continued attempt to offer effective and oftentimes less expensive drugs. It’s a healthy strategy to reevaluate formulary spend. Having this control in your hands, as an employer, is healthy. A multi-tiered formulary design that separates generics, preferred, non-preferred and specialty, is a proactive approach.

Assess Utilization Management

Likely, we all know some form of utilization management strategy whether it’s prior authorization, step therapy or Day-1 Utilization Management (UM) Control. It’s important to know not just that they exist, but what they are and what they do. In essence, these strategies take a stepwise approach to managing member drug utilization and drug spend, guiding members to safe, more cost-effective drug choices using clinically based criteria.

  • Prior authorization: right drug for the right indications and the right clinical assessment.
  • Step therapy: lower cost options are tried first.
  • Utilization management: unneeded services are identified in advance.

Use Specialty Pharmacy Services

What if you’re still buckling under the costs of specialty medications despite using all these strategies? One option is Specialty Pharmacy Services. This can include alternative procurement strategies, patient assistance programs, copay assistance through the drugmaker, or other underutilized options for lowering costs. That may include accumulator adjustments which acknowledge high deductible plans and hold the integrity of the plan in place while staying compliant with the IRS.

Finding Success with Pharmacy Drug Cost Containment

The PBM selection must be a good match for your organization’s situation. There isn’t a one-size-fits-all solution. First Person had a client, an employer of 300, with limited flexibility to effectively manage their spend. They had one member driving specialty medication expenses on their plan. The First Person team implemented a transparent PBM, a specialty medication management program, and the Care Line employee advocacy solution. In the first year, they had $500,000 in savings. For an employer of any size, a half million dollars in pharmacy drug cost savings is significant!

Pharmacy drug costs are significant, they are rising and pharmaceutical companies are incentivized to continue the production of novel (and very expensive) therapies. The watchwords now and for the foreseeable future for employers when it comes to prescription drug cost containment strategies within their health plans should be vigilance and fit. Understanding your employee population and the PBM options that are available to you is crucial.

Written by Cameron Troxell, Vice President of Benefits Strategy. Feel free to drop him a note or reach out on LinkedIn.