While the rise in corporate health-care costs has significantly moderated in 2014 and 2015, inflation in the cost of drugs continues to outpace the overall medical spending trend.

In a Buck Consultants survey of 170 organizations, 77% of them said they spent at least 16% of total heath-care costs on pharmacy benefits in 2014. That was up from 71% that said so the year before. A major culprit is the continuing proliferation of high-cost drugs used to treat complex conditions like multiple sclerosis, rheumatoid arthritis, hepatitis C, and hemophilia.

There is no end in sight for that trend. “With costs for specialty drugs showing no signs of decreasing, we could easily see the average percentage of total health-care spend employers are paying for pharmacy increase … to 20%,” says Buck principal Paul Burns. Although these products often account for less than 2% of total claims, they often account for 20% or more of total annual pharmacy-plan costs.

The average cost of a month’s supply of a specialty drug exceeds $2,500, and the annual cost per course of treatment can reach $75,000, according to Buck. Most companies understand the potential cost hit, as 77% of survey participants said they have drug-utilization-management policies such as requiring employees to obtain prior authorization. However, Buck reports, 22% of respondents said they don’t even know how much they are spending on such drugs, although that number was down from 32% in 2013.

One reason for a lack of awareness: some companies that track specialty-drug spending look only at pharmacy benefits, ignoring the fact that more than half of specialty-drug utilization occurs through medical benefits, Burns says.

Many companies are improving in that regard, however. Another notable survey finding was a sharp increase in 2014 in the proportion of pharmacy benefits managers (PBMs) receiving claims data from plan sponsors’ medical and disease-management vendors, to 73% compared with 55% in 2013.

That shift reflects the fact that many plan sponsors have begun expending significant effort to integrate data from all benefit programs. In particular, sharing such information with a PBM “helps ensure medical conditions are treated with pharmaceuticals when appropriate — by sharing data, a PBM can help identify gaps in care — and helps the PBM identify and intervene on potential drug-condition safety concerns,” says Anna Goldbeck, another principal in Buck’s pharmacy practice.

Overall, while pharmacy costs still account on average for less than one-fifth of health-care spending, controlling them is among the most effective ways to reign in the overall expense. Seventy-one percent of survey participants said having affordable pharmacy benefits has a “high impact” on a health-cost containment strategy.

Fewer respondents said the same about medical plan case management (50%), disease-management programs (44%), work-site wellness and health activities (35%), hospital/emergency room discharge counseling (30%), health coaching (28%), and health risk assessments (22%).

Buck Infographic

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One response to “Specialty Drugs Eat More of Health-Care Spending Pie”

  1. The increase in drug cost is truly Economics 101. Since Med-D went into place, guidelines were not put in place to eliminate common ownership between manufacturers, wholesalers, insurance companies, mail order pharmacy and chain pharmacies. Fast forward since the inception of Med-D in 2006 and what you have is a vertical-market of suppliers. These common relationships have eliminated competition in the market and have given the manufacturers and insurance companies the ability to drive up cost with no basis. Drug cost will continue to increase as long as these monopolies remain in place. If the desire is to drive drug cost down, this model currently in place has to be broken up and allow free-trade to make the price of drugs competitive.

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