“A year after the nation embarked on the experiment in health care called Obamacare, rising drug prices threaten to jack up costs for employees and employers alike in 2015.
Health care plans spend the most on drugs for common chronic ailments such as diabetes, high blood pressure and high cholesterol. As those conditions become more prevalent, growing demand is enabling pharmaceutical companies to boost prices at rates well beyond overall inflation. For example, spending by health plans in the U.S. on Lantus, a long-acting form of insulin made by Sanofi SA, rocketed 27 percent in 2013, according to , a pharmacy benefits manager in St. Louis.
Meanwhile, prices of specialty drugs—one-of-a-kind products like AbbVie Inc.’s arthritis injectable Humira—often command thousands of dollars a month for treatment without curing the underlying illness. These drugs made up less than 1 percent of prescriptions but accounted for 28 percent of U.S. drug spending in 2013, Express Scripts finds. They’re also the fastest-growing component of costs, jumping 14.1 percent last year versus an overall increase of 2.4 percent for conventional meds.
A branded drug that cost $100 in 2008 costs $197 today, according toExpress Scripts’ prescription price index.
The big run-up in brand-name drug prices means self-insured employers likely will insist on higher copays and coinsurance rates next year, health industry analysts say.
These plans probably will crack down on prescriptions in other ways. Among the tried-and-true methods: requiring the prescribing doctor to medically justify the use of certain drugs before the medication can be dispensed, limiting the number of doses allowed in one prescription and allowing patients to step up to expensive medications only after cheaper alternatives haven’t worked.
The rising costs could affect plans purchased on public health care exchanges under the Affordable Care Act. These insurance plans generally are less generous than other commercial policies in terms of drug coverage, shifting a greater percentage of the expense to policyholders. But higher drug prices may push insurers to reduce benefits or raise premiums.
As drug prices have risen, employers have shifted more of the burden on employees and their family members, to reduce their own spending. Since 2000, the average copayment for so-called preferred drugs—brand-name drugs with no generic alternatives—has almost doubled, $29 last year from $15, according to the Kaiser Family Foundation in Menlo Park, California.
Rates of coinsurance-based drug plans, which charge a patient a percentage of the prescription costs rather than a fixed copay, have jumped even faster, climbing to 32 percent in 2013 from 14 percent in 2008, according to Towers Watson, a human resources consultancy in Arlington, Virginia.
To be sure, the rise of generics has held down overall outlays on prescription drugs. Use of the copycat drugs yielded $1.2 trillion in savings on drug spending from 2003 to 2012, including $217 billion in 2012 alone, according to the Generic Pharmaceutical Association in Washington (see the PDF).
Ironically, however, the “patent cliff” of the past few years, in which dozens of popular branded drugs such as Pfizer Inc.’s cholesterol-lowering pill Lipitor lost patent protection, may have contributed to higher costs, says Bridget Eber, a pharmacist and Chicago-based clinical strategy leader at the Rx Group Purchasing program at Towers Watson. Knowing that prices soon would plunge when generics became available, drugmakers frequently hiked prices while they still had their monopoly.
That looks like what Sanofi did with Lantus. The French company raised the price of the drug twice in 2013—by 10 percent and then 15 percent more, according to Bloomberg News. Lantus is set to lose its patent protection in February, but a lawsuit may extend its exclusivity into 2016.
But employers run a risk if they shift too much of the prescription-cost burden onto employees. Patients who can’t afford medications could end up even sicker and need hospitalization, which would mean higher bills for everyone.
“Employers are coming to the realization that a coinsurance model with an unrealistic maximum may ultimately lead to noncompliance and more hospital stays,” says John Malley, pharmacy benefits national practice leader at Aon Hewitt, the Lincolnshire-based human resources consulting arm of insurance giant Aon PLC. “They’re asking, ‘How do we get people on the right therapy without creating a barrier that will prevent them from getting access?’ “
Littelfuse Inc., an electronics supplier based in Chicago near O’Hare International Airport, is doing something behind the scenes to limit its spending on prescription drugs: The company now is reinsured for drug claims over $145,000 per policy in a year. Previously, only medical costs were covered by that policy.
“There are pills for certain drugs that are $40,000 a pill,” says Christine Kairies, Littelfuse’s U.S. benefits manager. “It’s much more likely that someone in your plan could rack up more than $150,000 in a year on Rx alone.”