August 20, 2024

Key Takeaways

• In 2023, employers spent a median of 27% of health care dollars on pharmacy, up from 21% in 2021.
• Employers’ top pharmacy benefit concerns include appropriate use and/or long-term cost implications of GLP-1s and other newer weight management medications, patient and plan affordability of high-cost drugs as well as pharmacy costs in aggregate.
• Pharmacy cost overall ranks second among employers’ top health and well-being priorities for 2025. Unexpectedly high utilization and anticipated demand for GLP-1s, along with a pipeline of high-cost cell and gene therapies, are exacerbating these cost concerns.

Rising Pharmacy Trend Is an Area of Concern

Pharmacy-related costs represent a substantial contributor to employers’ rising health care costs. As discussed in Part 2, in 2023, a median of 27% of employers’ spending was on pharmacy overall, up 6 percentage points in just 2 years (Figure 2.4). When asked whether the prescription drug market is competitive enough to keep drug prices affordable, nearly 9 out of 10 employers called for change, with more than half of employers seeking both market and government-based reform as needed to improve affordability (Figure 5.1)

Services and Solutions Offered

Employers’ top pharmacy concern was the appropriate use and/or long-term implications of GLP-1s and other newer weight management medications, closely followed by overall costs as well as patient and plan affordability of higher-cost drugs (Figure 5.2). The escalation of GLP-1s as a chief concern of employers, overshadowing other significant concerns in prescription drug costs, shows just how urgent the cost situation is for 2024. Employers also continue to express concerns about lack of transparency in contracting and rebates, as well as the opaqueness of the pharmacy supply chain overall. These concerns undoubtedly give rise to the previously mentioned need for market and governmental reforms in this space. 

As covered in Part 1, 79% of employers are seeing an increased demand for obesity treatment from their employees. Cost concerns associated with this drug class will multiply with the potential expansion of GLP-1 utilization/indication to treat other conditions (e.g., cardiovascular disease, substance use disorder). Nearly all employers (99%) will cover GLP-1s for the treatment of diabetes in 2025; 70% will do so for obesity; and 38% will cover it for the treatment of cardiovascular conditions. In last year's survey, 49% of employers planned on covering GLP-1s for obesity/weight loss. That number will grow to 70% in 2025, representing a substantial increase (Figure 5.3). 

With the growing coverage of these effective medications comes a need for programs and strategies that ensure appropriate utilization. The most common tool is prior authorization, with 87% of employers using this approach in the coming year. About half of employers involve a lifestyle/weight management program, along with meeting a certain body mass index (BMI) threshold and/or having comorbidities in addition to what’s indicated by the Food and Drug Administration (FDA) (Figure 5.4).

Improving Affordability through Cost and Utilization Management Initiatives

Employers are taking action to address affordability challenges, with 55% working to adjust the design of pharmacy benefits to improve patient affordability by 2025. More than half of employers are aiming to maximize manufacturer copay programs in 2025, and even more (62%) are planning to pursue newer initiatives in 2025 with their current PBM to reduce/manage the cost of pharmacy benefits (Figure 5.5). The strategy that is poised to experience the most extensive growth is a transparent PBM arrangement, with 40% of employers considering implementing one between 2026 and 2027. This bump in interest is a nod to findings explained in Part 1 detailing employers’ drive to explore alternative PBM models and achieve greater transparency (Figure 1.3). 

The survey also showed that employers support tactics to control a key driver of health care costs: specialty medications. In 2025, most employers will leverage mature solutions, such as prior authorization (95%), step therapy (87%), approval for only a limited initial supply (67%), high-touch case management (71%) and site-of-care management (70%) for specialty medications (Figure 5.6). Considering that these strategies are not sufficient to curb costs, employers are looking to adopt a larger variety of programs, including a greater focus on biosimilars and a pharmacy navigation service. 

Employers have been considering approaches geared toward high-cost therapies with price tags upward of $1 million (i.e., cell and gene therapies) since 2022. With cost pressures looming for 2025, these efforts are holding steady. The number of employers delaying the inclusion of new treatments on the formulary at time of launch will remain at 32% for 2024 and 2025. (Table 5.1). A 2-percentage point increase of employers from 2024 to 2025 are considering an indication- and outcomes-based pricing approach, and only 1-percentage point more are looking at stop-loss insurance for a specific drug. The slowing of this trend may point to employers’ recognition of the need for unique comprehensive solutions that allow them to not only manage the cost but also implement appropriate utilization management and steerage to high-quality sites of care.

Opportunities Abound for Coverage of Genetic Testing and Biosimilars

Some employers continue to offer coverage for precision medicine, with 44% offering coverage for genetic testing based on a family history of certain conditions (Figure 5.7). In addition, there is a slight increase in coverage of immunotherapies such as CAR-T cell therapy to treat cancer. Coverage for pharmacogenomic testing is poised to increase, with 22% of employers considering doing so in 2026-2027. There seems to be some uncertainty from employers about available opportunities for these more personalized forms of medicine. This uncertainty presents an opportunity for partners—health plans, PBMs, consultants, navigators and point solutions—to assist employers in designing programs holistically. 

Biosimilars continue to make incremental strides in providing a lower-cost alternative to certain expensive treatments. This change has been made possible through formulary changes, patent expirations for reference products, targeted communications to patients and of course, employers’ part in promoting their use. In 2025, 39% of organizations will cover biosimilars on the same tier as specialty drugs, a slight decrease from 47% doing so in 2024 (Figure 5.8). Twenty-seven percent of employers plan to adopt a formulary that favors biosimilars in 2025. Fifteen percent will use education campaigns to communicate the benefits of biosimilars in 2025, while 14% will engage with their PBM on flexible contract guarantees to better promote biosimilars. Surprisingly, one third of employers were uncertain how biosimilars are managed through their program; employers need to pursue this information with their PBM and consulting partners.;

Moving Away from a Rebate-driven Model Continues to Pose Challenges

A lack of transparency in drug pricing and contracting as well as rebate practices add layers of complexity and concern in managing pharmacy benefits. Survey trends over the last 3 years suggest that the industry has made slight to moderate progress in adopting alternatives to the rebate-driven contracting model and formularies (Figure 5.9). Employers acknowledge that shifting away from this model takes time and, in some cases, the development of affordable alternatives to the current model.

Employers experience a variety of challenges and barriers when trying to move to an alternative model. These include difficulty calculating the financial implications of conversion from a rebate-driven model, having too many stakeholders who benefit from this model and employers’ reliance on rebates to offset overall health care costs (Figure 5.10). In an environment of rapidly increasing pharmacy costs, employers will need to challenge their PBM and consulting partners to overcome these hurdles and achieve a more transparent and cost-effective pharmacy model. 

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Changes to the pharmaceutical supply chain will no doubt leave an impact on the future of health care. While the specialty drug pipeline is frightening from a cost perspective, the positive side is that there are more new approaches driven by newer entrants to the PBM space. This will enable employers to make changes, for example, getting out of the rebates game.”

- Marco Diaz, News Corp

Related Business Group on Health Resources

To learn more on how to address the topics in this section, see the following Business Group member resources:

• Biosimilars: Reviving the Conversation Amid Shifting Market Tides
• Connecting Employees to Cell and Gene Therapies Outside the United States: Opportunities and Challenges
  
• Managing Blockbuster GLP-1 Medications: What Employers Need to Know and What they Can Do
• Prescription Drug Pricing and Pharmaceutical Supply Chain Reform Policy Position Statement
  
• Specialty Drugs and Gene Therapies: Driving Value and Mitigating Volatility

More Topics

Resource Plan Design & Administration Pharmacy