October 11, 2023
Dramatic growth in drug spending in aggregate, as well as patient exposure to price at the point of sale, continues to weigh heavily on the minds of employers. As increasingly sophisticated and targeted treatments come to market, such as gene/cell therapies and blockbuster and high cost drugs, employers are facing new, potentially large, cost increases, and still contending with unsustainable price increases for existing drugs and treatments. Legacy market structures and business practices – including a lack of price transparency and a rebate-driven contracting model – have proven to be stubbornly entrenched and underpin much of the drug price inflation. Conflicts of interest created by consolidation of entities in the supply chain, and among stakeholders striving to maximize their own economic reward at the expense of other parties/stakeholders, further contribute to price inflation. Overall, prescription drug affordability challenges continue to make this issue one of intense interest among policy makers, patients, payers and other pharmaceutical supply chain stakeholders.
Employer efforts to control drug trend via traditional utilization management techniques, plan designs and educational efforts, while necessary, are not enough for sustained affordability of prescription drugs. Underscored by Business Group on Health’s 2024 Large Employer Health Care Strategy Survey, employers’ top concerns regarding pharmacy benefit plans are patient and plan affordability of high-cost drugs in the pipeline (92% very concerned or concerned) and the overall pharmacy cost trend (91%). Some policy proposals under consideration, such as mandatory caps on participant out-of-pocket prescription drug expenses, are short-sighted or rely on too narrow a view of the issues. Proposals that do not reach and address the underlying challenges across all stakeholders provide a false sense of progress on cost-containment and, instead, are likely to result in premium increases for plan participants and higher overall expenses for employer plans and other payers.
Employer plan sponsors and patients seek a delivery model marked by transparency, affordability and access. Business Group on Health convened the Pharmaceutical Supply Chain Leadership Forum (PSCLF) – a multi-year effort to organize key stakeholders who participate in the delivery of, and payment for, prescription drugs from the point of inception to patient delivery – which developed consensus driven solutions to address prescription drug pricing. Business Group on Health supports and is pursuing policy changes that enhance the ability of employer plans to negotiate fairly with the various stakeholders in the pharmaceutical market and ensure access to appropriate medications and treatments for their employees and families. Some examples include:
Promoting competition and innovation within the pharmaceutical market by:
- Increasing the availability of generic medications by making regulatory changes to the patent process through the U.S. Patent Trademark Office (USPTO) and the exclusivity process through the FDA; and
- Eliminating barriers that prevent the uptake of biosimilar products.
Realigning financial incentives across the pharmaceutical supply chain to optimize value while maintaining and improving outcomes, reduce artificial price inflation and cost-shifting/operational impacts from public programs, and eliminate conflicts of interest by:
- Maintaining plan design flexibility and options to appropriately manage utilization and cost;
- Requiring pharmacy benefit managers (PBMs) to be fiduciaries of the plan with respect to their services;
- Requiring full financial transparency of PBMs (and any related entities), suppliers/administrators of medical Rx items and services, and pharmaceutical manufacturer research and development with respect to applicable items and services;
- Eliminating prescription drug rebates and moving to true, transparent pricing for health plan acquisition; and
- Ensuring Medicare, Medicaid, and other public payer program actions do not harm employer plans through cost-shifting, detrimental supply chain practices, and otherwise impeding innovation and employer plan choice and flexibility.
Why It Matters
- Americans pay higher prices for prescription drugs than any other country in the world, with prescription drug prices in the U.S. more than 2.5 times as high as those in other similar high-income nations (HHS ASPE, 2022).
- According to our 2024 Large Employer Health Care Strategy Survey, the median percentage of employers’ health care dollars spent on pharmacy increased to 24% in 2022.
- The cost of specialty drugs has continued to grow, totaling $301 billion in 2021, an increase of 43% since 2016. Specialty drugs represented 50% of total drug spending in 2021 (HHS ASPE, 2022).
- Costly new specialty drugs – such as gene/cell therapies and blockbuster and high cost drugs – are a major driver of both spikes in health spending and overall spending.
- Employers recognize that addressing overall plan affordability, as well as affordability for their employees, is a high priority. According to our 2024 Large Employer Health Care Strategy Survey, 65% of employers are striving to reduce patients’ out-of-pocket drug costs in 2023 through strategies such as no-cost preventive medications or non-preventive generics.
- According to our 2024 Large Employer Health Care Strategy Survey, employers also support a more competitive and transparent market for prescription drugs, with 85% responding to our survey that this is a very important or important policy priority.
More TopicsPolicy & Advocacy Pharmacy/Prescription Drugs
- 1 | “What Are the Recent and Forecasted Trends in Prescription Drug Spending?”
- 2 | “What Are the Recent and Forecasted Trends in Prescription Drug Spending?,” Peterson-Kaiser Health System Tracker (blog), accessed March 18, 2019, https://www.healthsystemtracker.org/chart-collection/recent-forecasted-trends-prescription-drug-spending/.
- 3 | “What Are the Recent and Forecasted Trends in Prescription Drug Spending?”
ERISA PreemptionPreserving ERISA Policy Position Statement
Tax ExclusionTaxing or Limiting Tax-Free Benefits Policy Position Statement
Drug PricingPrescription Drug Pricing and Pharmaceutical Supply Chain Reform Policy Position Statement
TransparencyTransparency Policy Position Statement
TelehealthTelehealth and Virtual Care Policy Position Statement
Medicare ReformMedicare Payment and Delivery Reform Policy Position Statement
HSAsHealth Savings Accounts (HSAs) Policy Position Statement
Surprise BillingSurprise Billing Policy Position Statement
OpioidsOpioids Policy Position Statement
Paid LeavePaid Leave Policy Position Statement