Background

According to Pharmacy Times, between July 2021 and July 2022, more than 1,200 medications had a price increase that surpassed the inflation rate during that time of 8.5%, with the average increase across these drugs coming to a staggering 31.6%. Overall prescription drug spending is projected to rise at an average annual rate of 6.1% through 2027.

Why are we seeing this uptick? An aging population, healthcare services costs, and administrative costs (e.g., financial transactions and patient services) are likely partly to blame. There are a range of strategies and tactics to help combat rising pharmacy costs within your benefits program, but it is important to understand what is driving these costs both globally and specifically within your organization. There is much talk about the skyrocketing costs of specialty medications. Specialty medications are now responsible for over 50% of total pharmacy costs, yet only about 2% of the population is using them.1 Unfortunately, a significant portion of pharmacy spend is going towards innovative and/or targeted therapies that treat rare, complex, genetic or inherited diseases, and cancer – all of which are usually beyond our control.

Preventing the Preventable

On the other hand, however, there are several behaviors that have a strong influence on health outcomes: tobacco use, alcohol consumption, physical activity, and diet.6 A direct correlation between cigarette smoking and the risk of heart disease has been shown and it is in fact the single most important modifiable risk factor for heart disease. Cigarette smoking has also been linked to certain cancers, which is the second leading cause of death in the United States. In fact, 16 million Americans have at least one disease caused by smoking, costing over $240 billion in healthcare costs annually.1 

Obesity has been linked to multiple chronic diseases including heart disease, diabetes, and musculoskeletal conditions impacting bone health. The Centers for Disease Control and Prevention (CDC) reports that obesity adds another $173 billion worth of burden on the healthcare system per year because of resulting complications. Several studies have documented the adverse cardiovascular health effects that plague overweight adults. This is partly because obesity adds increased demands on the heart to supply blood to the body.  Excess body weight and obesity are linked with an increased risk of high blood pressure, diabetes, heart disease and stroke. Losing as little as 5 to 10 pounds can make a significant difference in your risks. Even if weight control has been a lifelong challenge, taking small steps today can go a long way.2

Diet and physical activity are behaviors that directly influence weight. However, they may also have direct effects on diseases.

Wellness interventions provide an opportunity for us to have some control over the healthiness of our workforce. These interventions play an important role in moving the needle by working to solve for the root causes at play. Employers should be incentivized to implement these preventative programs not only because wellness programs are considered as “nice perks” that increase employee morale and productivity, but also and more importantly, they are tangible solutions that can reduce the burden of health and pharmacy costs. If less employees need prescription drugs in the first place, pharmacy spending could decrease dramatically. Seems easy, right?  

Let’s Get Tangible: Wellness for Outcomes

The higher the risk factor prevalence within a population, the greater healthcare costs are likely to be, both within the pharmacy realm and overall. Therefore, wellness initiatives targeted towards combatting, reducing, or preventing these risk factors will have a more tangible impact on reducing costs and improving health outcomes.

A Targeted Approach

There are six key lifestyle behaviors that promote a long and heathy life3:

The goal is to reduce the need for prescription medication by stopping problems before they even exist. In a study of 55,000 people, those who made healthy lifestyle choices such as avoiding smoking, eating healthy, and exercising lowered their heart disease risk by about 50%.4 In fact, unhealthy lifestyle behaviors such as those that oppose those listed above cause approximately 70-90% of chronic diseases, which yield up to 75% of total healthcare spend in the U.S.5 As such, when it comes to medical and pharmacy costs, the most successful wellness programs  will be those aimed at those six pillars and affecting long-lasting behavioral changes.

Wellness Point Solutions

The good news is, the wellness industry awakened with this realization a decade or so ago, in the midst of out-of-control healthcare costs, and now there are a plethora of wellness companies and tools available for employers to leverage. In fact, in the U.S., the wellness industry represents $1.2 trillion in revenue6. Homing in on the six behaviors above, employers might consider the following*:

A range of wellness point solutions are out there, and the all-encompassing ones will have tools pointed toward all six of our wellness pillars. Additionally, larger employers have started to introduce onsite health clinics and resources to make employee engagement in their health more convenient. Some incentivize through walking or step challenges. Health plans build in wellness incentives such as reimbursements for gym memberships. Whatever it looks like, introducing preventative measures that lessen the prevalence of disease and poor health outcomes; reduce the need for prescription drugs, lost work days, and absence from work; and improve mental health; can lessen overall healthcare costs and prove advantageous for your workforce.

Before you make any decisions around wellness solutions, be sure to understand what is driving your pharmacy spend within your own organization. We recommend working with a consultant or actuary to take an unbiased and robust view of your data. Better yet, consider taking the next step to…

Work With a Clinical Pharmacist

Even the best wellness programs cannot prevent or reverse existing and/or genetic health problems within a workforce population, and there are times when prescription medications are necessary. Typically, a clinical pharmacist is not part of your health benefits team, weighing in on strategy and dissecting the needs of your workforce population. I firmly believe this is both a gap and an opportunity.

An experienced clinical pharmacist can look at the full array of options available through a different lens, putting all the pieces together (medical, Rx, wellness, etc.) and provide targeted recommendations to improve outcomes while controlling costs.

Another important role of a clinical pharmacist is the ability to recognize signs of medication non-adherence, which can cause disease progression and adverse outcomes. If your organization is spending money on prescription drugs that are not being taken correctly and therefore cannot have the intended effect(s), a pharmacist can flag that up.

Get in Touch

When it comes to healthcare and pharmacy costs, many of the factors involved are out of our hands. However, we do have some power to affect change and take control through preventative, wellness, and innovative and targeted pharmacy solutions. Given the current climate, why wouldn’t we aim to do so?

If you need assistance assessing your current wellness programs, navigating the marketplace of vendor solutions, conducting a Request for Proposal (RFP), auditing your pharmacy benefits contract terms and utilization data, or are interested in leveraging a clinical pharmacist to yield customized and impactful results, our team would love to chat with you.

*Please note, Spring’s intent is neither to promote nor recommend any of these specific solutions, but rather to portray a snapshot of what is available in the market.

1https://www.wellsteps.com/blog/2020/01/02/benefits-of-wellness-lower-health-care-costs/
2https://www.stroke.org/en/about-stroke/stroke-risk-factors/risk-factors-under-your-control
3https://www.verywellhealth.com/lifestyle-factors-health-longevity-prevent-death-1132391
4https://www.health.harvard.edu/blog/lifestyle-changes-to-lower-heart-disease-risk-2019110218125#:~:text=The%20good%20news%20is%20that,disease%20risk%20by%20nearly%2050%25.
5https://www.wellsteps.com/blog/2020/01/02/benefits-of-wellness-lower-health-care-costs/
6https://www.zippia.com/advice/health-and-wellness-industry-statistics/#:~:text=Here%20are%20some%20statistics%20about,products%20is%20about%20%24168%20billion

On National Pharmacist Day, our Assistant Vice President of Pharmacy, Jennifer Perlitch, a clinical pharmacist, is offering her view and surprising facts about the pharmacy industry today, as well as how she’s helping Spring’s clients combat the difficult climate.

The fact that pharmacy costs continue to skyrocket is not groundbreaking news. But what many people aren’t aware of is the “why” behind the increases. Several factors influence the price of a prescription drug such as the drug’s uniqueness and effectiveness and how much, if any, competition exists in the market. Unfortunately, there are times when drug prices increase significantly without important new clinical evidence. Regardless of why, as these prices continue to increase, it creates a significant burden on patients who need to pay deductibles or coinsurance.

So, what’s going on behind the scenes? Pharmacy is just one piece of the healthcare puzzle, and we know overall healthcare costs are also on the rise. There are five key reasons why healthcare costs are rising1:

When it comes to pharmacy specifically, there are two of these areas that I want to dive further into.

Chronic Disease Prevalence

Six out of every 10 adults in the United States have a chronic disease or condition, according to the Centers for Disease Control and Prevention (CDC). The most common chronic conditions in the U.S. include:

Chronic conditions often require long-term medical attention and prescription drugs which often delay disease progression and improve or preserve quality of life. Some conditions may limit daily living activities, which could warrant use of home health care or other support services. The challenges of living with chronic illness also may increase the likelihood of suffering from anxiety, depression, and other mood disorders.

All these factors make caring for chronic disease patients more complex and resource intensive. There is a strong relationship between healthcare costs and chronic diseases in the United States. According to a report from the American Action Forum, the U.S. spends about $3.7 trillion each year for the treatment of chronic health conditions and the resulting loss of economic productivity.

In addition, the COVID-19 pandemic has caused some chronic disease patients to delay or avoid essential care. This means that chronic disease patients are spending less on healthcare services in the short term, but this will likely have damaging health and financial effects in the long term. When chronic disease patients delay care, they risk suffering from potentially life-threatening complications as a result. The long-term management of these complications will likely contribute to rising national health expenditures and consumer costs.

Rising Drug Prices

According to the Organization for Economic Cooperation and Development (OECD), the average American spent about $1,226 on prescription drugs in 2019 (the most recent year with internationally comparable data). This per capita cost is significantly higher than other developed countries. These costs will likely continue to increase, as the Centers for Medicare & Medicaid Services (CMS) estimates that prescription drug spending in the U.S. will grow by 6.1 percent each year through 2027.

The spending growth is due in part to a continuing emphasis on specialty medications and precision medicine. Specialty drugs are high-cost prescription medications used to treat complex conditions such as autoimmune diseases, chronic conditions, and cancers. Some therapies utilize genetic data to deliver a highly targeted, personalized treatment. The complex nature of these drugs makes them very costly to develop and distribute.

Drug pricing strategies also contribute to rising healthcare costs. Drug manufacturers establish a list price based on their product’s estimated value, and manufacturers can raise this list price as they see fit. In the U.S., there are few regulations to prevent manufacturers from inflating drug prices. There is no federal oversight; the federal government does not regulate drug pricing. It does however encourage the development of generic drugs through an abbreviated approval process to help improve access and affordability, but this often takes years.

Private Health Insurance and Out-of-Pocket Costs

Private health insurance spending growth accelerated slightly to 4.5 percent in 2018, from 4.2 percent in 2017. This trend is the net effect of faster spending growth in many services such as physician and clinical services and prescription drugs, which were only partly offset by slower projected growth in the net cost of private health insurance spending. In 2019, private health insurance spending growth slowed to 3.3 percent, which, in part, reflects the estimated impact of the effective repeal of the individual mandate within the Affordable Care Act (ACA). Over the latter period of the projection, 2020-27, private health insurance spending is projected to grow by 5.1 percent per year on average (or 1.8 percentage points more rapidly on average than in 2019) resulting mainly from the lagged response to higher projected income growth, especially in 2020-22.

Out-of-pocket (OOP) spending growth is projected to have grown faster at 3.6 percent in 2018, from 2.6 percent in 2017, due to faster income growth, as well as higher average deductibles for private health insurance enrollees with employer sponsored insurance. During 2020-27, out of pocket spending growth is projected to accelerate to an average annual rate of 5.0 percent, which is a similar rate as private health insurance during this period. During this timeframe, somewhat faster growth was projected for 2022, a year in which OOP spending was anticipated to grow 5.4 percent related to the excise tax on high-cost insurance plans3.

How can the Spring Consulting Team help?

As an employer you want the best for your employees and their families. Ensuring your pharmacy benefits meet their needs and supports their well-being is a critical component of your benefits package.

Evaluating your current pharmacy benefit offerings is an excellent place to start!

Here is an overview of our Pharmacy Benefits Consulting Services:

Evaluate current Pharmacy Benefit Management (PBM) Services

– Conduct annual/semi-annual reviews of PBM services, contract compliance, and performance guarantees and provide recommendations/assist in developing a plan to rectify any deficiencies.
– Perform follow-up activities as necessary to ensure contract compliance, efficient program management and responsive account management
– Review and evaluate utilization and any other key reports to assess trends/areas for opportunity

New PBM Implementation Services

– Facilitate implementation of the new PBM services including transition of benefit design, formulary, eligibility and pre-existing prior authorization approvals to new PBM

Pharmacy Benefit Consulting Services

– Review pharmacy benefit packages options and assist in selecting best option for your business needs
– Evaluate and recommend options for managing specialty pharmacy products
– Analyze the performance of the retail, mail order, and specialty pharmacy benefit option and make recommendations to improve the management of the drug cost trends
– Review and evaluate clinical and other optional programs and provide recommendations
– Meet with key stakeholders semi-annually (or quarterly) to review drug plan performance and identify recommended changes going forward.

Account Management Services

– Manage the ongoing relationship and communications with the PBM regarding specific eligibility and benefit updates
– Represent and advocate for business needs with the PBM when needed
– Participate in all PBM and client meetings related to pharmacy benefit and mail order services

Given the perfect storm outlined above, now is a great time to reassess all your benefits programs, but especially those related to pharmacy; please get in touch if you would like to optimize in this area.

1 https://www.definitivehc.com/blog/5-reasons-why-healthcare-costs-are-rising
2 https://jamanetwork.com/journals/jama/fullarticle/2785479
3 https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ForecastSummary.pdf