In recent years, the United States healthcare system has taken a huge hit due to the astronomical increase in drug prices. To get to the root of this growing issue, everything from treatment plans to reimbursement rates for prescription products must be properly scrutinized. Included here are four main drivers of rising drug cost.
Driver #1: Utilization Growth
A 2015 study revealed that an estimated 60 percent of Americans regularly take at least one prescribed medication. That study also estimated that 15 percent of Americans are prescribed to at least five medications and showed the influx of specialty drugs into the prescription drug market. Specialty drugs treat rare, complex conditions such as cancer and multiple sclerosis, and their dependency appears to be on the rise as the Food and Drug Administration rapidly continues to approve more and more specialty drugs coming down the pipeline.
Although specialty drugs, in many cases, can mean life or death (or simply a better quality of life) for many patients, they do come at a growing cost, as the spike in specialty drug use continues to play a pivotal part in the upward shift in prescription drug cost.
Driver #2: Drug Mix
Another driver of increased drug spend pertains to a shift in utilization among the availability and use of generic drugs. An upward shift in specialty drug utilization has complicated the impact of unbranded or generic alternatives, thus causing the advantage of drug mixing to lose some of its steam. In addition to the advent and growth of specialty drug spending, the introduction of innovative new therapies from the drug pipeline—for which no therapeutic equivalents exist or simply achieves better health outcomes—has also impacted drug mix, subsequently driving costs upward in the absence of lower-cost alternatives.
Driver #3: Price Inflation
In 2016 an industry survey was conducted with managed care organizations, health insurers, pharmacy benefit managers (PBMs) and third-party administrators, that revealed drug pricing was expected to reach a double-digit increase of drug unit cost in 2017 (11.6 percent)—well above the current U.S. inflation rate of 1.9 percent. This figure will eclipse last year’s spike in drug cost, which was 11.3 percent. What gives this projection validity is the alarming fact that prescription drug costs have been soaring at a pace that’s far beyond the rate of inflation for years with no clear evidence of a trend shift—forcing employers to research and adopt more effective strategies to manage prescription drug use and target costs.
While drug makers and their investors have benefited immensely from the soaring drug costs, this growing trend is a major financial drain for plan sponsors and their members who often need these expensive, life-saving medications. Certain factors have led to the rapidly growing prescription drug prices in the U.S. These factors include (but are not limited to) the high demand for specialty drugs, the faster access to new and specialty brands, and even the higher standard of living. Prescription drug price inflation is gaining steam with no signs of slowing down anytime soon. For that reason alone, plan sponsors must remain informed of industry trends and market dynamics that could promote strong savings potential for their respective PBM contracts. Make sure your PBM contract clearly specifies terms to protect you from falling victim to some unfavorable industry trends and to allow you to capitalize on innovation. The contract terms should also include comprehensive, market-check rights that allow for continual assessment of the current market for more competitive contract terms.
Want to learn how PSG can help you navigate the complexities of rising drug costs? Contact us today for an introductory consultation!