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April 17, 2019

What's the prescription for managing pharmacy costs?

Rick Kelly

For employers, managing pharmacy costs effectively has recently become as important as managing their underlying medical expenses. With drug spending to reach an estimated $610 billion by 2021 and the pharmacy benefit representing approximately 20% of an employer’s total health plan cost, it is critical that employers gain more awareness of their pharmacy arrangement.

So what’s the prescription?

Let’s start with what drives pharmacy costs. The two primary drivers of pharmacy spending are 1) unit cost, and 2) utilization. To rein in cost, employers will want to consider a thorough assessment of both the price they pay for each and every drug and the protection provided by their Pharmacy Benefit Manager (PBM) contract. To improve utilization, the pharmacy plan design and the ability to engage employees and their dependents into becoming better consumers is paramount.

The ongoing introduction of specialty pharmacy drugs continues to increase unit costs, so much so that specialty drugs represented 40% of employers’ total pharmacy spending in 2017. Furthermore, nearly all drug companies spend more on advertising than on research and development, which leads to increased consumer utilization. For example, nearly everyone has heard of Crestor, but most people could not name other cholesterol management drugs, some of which are considerably cheaper.