Employers explore unusual cost-saving methods to combat prescription drug costs

Brookfield, Wisconsin—Annual health care cost increases are now slowing throughout the nation with one outlier—prescription drugs. Drug prices spiked in 2014 and are not losing steam. The International Foundation of Employee Benefit Plans asked employers how they are managing prescription drug costs in a new report: Employee Benefits Survey 2016. Responses revealed that, among other expense-saving methods, 18% of organizations are setting limits for specialty and biotech drugs.

"We've noticed a slight uptick in organizations placing limits on specialty and biotech drugs since we last surveyed our members in 2014," said Julie Stich, CEBS, International Foundation Research Director. "At that time, 15% placed limits.  The estimated price tag for treating a patient with a specialty drug is high: For some chronic conditions, a year of treatment with a specialty drug can exceed $100,000." Stich added that in many cases, specialty drugs represent only about 1% of all prescriptions but account for one-quarter to one-third of total drug spend.

The most popular cost-controlling methods for organizations are tiered pricing and a mail-order drug service, with 89% and 82% of employers currently implementing these initiatives.  As for drug formulary lists, 71% of organizations have this tool in place, and 63% are using a pharmacy benefit manager (PBM). Other techniques include:

  • Step therapy/therapeutic substitution – 46%
  • Prior authorization/utilization management – 38%
  • Mandated use of generic drugs when available – 37%
  • Preferred provider networks – 35%
  • Drug card program – 28%
  • Preferential pricing agreements (negotiated with pharmacies/manufacturers) – 18%
  • Discontinued or limited coverage of lifestyle drugs – 17%
  • On-site or near-site pharmacy – 16%
  • Coverage of select over-the-counter drugs – 15%
  • Collective purchasing groups – 14%
  • Reference-based pricing – 6% ​​

Employers are not the only ones feeling the impact of prescription drug pricing—Costs are now getting passed to employees. More than one-third of employers have increased their employees' share of prescription drug costs already or will within the next year because of cost pressures due to the Affordable Care Act (ACA), according to the Foundation's 2016 Employer-Sponsored Health Care: ACA's Impact survey report.

"Employers are finding it necessary to vigilantly watch prescription drug prices," Stich said. "They are striving to keep costs controlled by trying new approaches like using five or more tiers for cost sharing, where the highest tier is for the highest-priced drugs—usually specialty drugs. Moving forward, employers will continue exploring new cost-saving measures like referenced-based pricing."

More information on Employee Benefits Survey 2016 is available at www.ifebp.org/benefitsurvey2016.

The International Foundation of Employee Benefit Plans is the premier educational organization dedicated to providing the diverse employee benefits community with objective, solution-oriented education, research and information to ensure the health and financial security of plan beneficiaries worldwide. The Foundation has more than 33,000 multiemployer, corporate and public sector members representing over 25 million lives. For additional information, visit www.ifebp.org.