It’s no secret that pharmacy costs have reached astronomical heights.
Thanks in part to the extremely high cost of prescription medications, Americans spend more on healthcare than any other country in the world. These prices continue to rise, as prescription drug costs increased 7.8% in the second half of 2022. Since 2014, prices have risen an astonishing 35%.
One significant driver of these increases are specialty pharmaceutical costs. Although less than 2% of the U.S. population uses them, specialty drugs accounted for 24% of U.S. drug spend in 2010, 37% in 2015, and today accounts for more than 50% of total pharmacy spending.
This environment has led to the emergence of innovative new businesses seeking to bend the pharmacy benefits cost curve. These companies are cutting unnecessary waste by disrupting traditional pharmacy business models, all with the goal of driving down pharmacy costs for consumers, employers, and plan sponsors.
At Conner Strong & Buckelew, we’re strong advocates for these disruptive services and their mission to cut costs. As a leading employee benefits broker, we’re keeping close eye on this quickly evolving landscape. Here are the top four pharmacy benefits disruptors we’re watching in 2023 and beyond:
Over the past decade, the pharmacy business has been dominated by a small number of large pharmacy benefits managers (PBMs). These PBMs have dominated the market due to their massive volume and buying power that enables them to negotiate the best prices. With limited competition, these PBMs are typically reluctant to be flexible when it comes to their offerings, leading to frustration among plan sponsors that want more customized options.
However, new smaller PBMs are emerging as more agile for employers and plan sponsors. This new wave of PBMs is much more willing to allow customers to bolt on unique programs, carve out certain features for specialty products, and even offer transparent prescription drug pricing data to help plan sponsors and consumers make smarter buying decisions. When plan sponsors work with a PBM that’s able to remain nimble and offer unique advantages that meet their specific needs, plan sponsors can find new ways to lower their overall pharmacy costs.
Under the current prescription drug purchasing model, it is typical for a prescription drug to change hands several times before it ever gets to the end user. Every time a drug is exchanged between the manufacturer, wholesaler, drug store, or otherwise, its price is marked up, causing the final price paid by consumers to be vastly higher than it was when it left the manufacturer.
New disruptive PBMs are eliminating these middlemen by making deals with drug manufacturers and selling products directly to consumers. These PBMs are also empowering purchasers with drug pricing transparency that has traditionally been veiled from the public. This model is already disrupting the pharmacy landscape and has the potential to significantly lower pharmacy spend for plan sponsors across the U.S.
For many years, drug manufacturers have made financial assistance programs and coupons available to consumers who struggle to afford the medications they need. As these programs and coupons have proliferated, it has become challenging for consumers to navigate the myriad options available to them and find the most cost-effective way to make purchases.
As such, disruptive new companies have emerged with the mission of helping plan members take advantage of these programs and coupons. These companies integrate within pharmacy benefits plans to help patients make the most of the discounts available to them. In some cases, these programs are able to identify thousands of dollars in cost savings for plan sponsors that would’ve otherwise been left on the table.
Pharmacy coalitions are groups of employers, plan sponsors, and other large purchasers of prescription drugs that band together to gain purchasing power and negotiating strength. By aggregating members, they’re able to place large orders of prescription drugs at a time, thus commanding more competitive pricing than a single organization could when negotiating alone.
Typically, these coalitions bring together thousands or even millions of members to vastly improve their negotiating positions. These savings are passed on to plan sponsors and employers. As a result of the stronger negotiating power, greater purchasing power, and competitive pricing that comes with joining a coalition, these partnerships can save employers and plan sponsors up to 25 percent of their annual pharmacy spend.
An Eye Toward the Future
Part of our jobs as employee benefits brokers is to keep a close watch on disruptive new services that can create cost savings for our clients. We’re advocates for any innovative approach that can create cost efficiencies for individuals and plan sponsors in need of less expensive ways to acquire life-saving drugs and treatments.
Pharmacy coalitions, coupon program specialists, flexible PBMs, and direct-to-consumer delivery models are undoubtedly reshaping the pharmacy space in exciting ways. As these changes continue to unfold, it is important for employers and plan sponsors to keep an eye on this shifting landscape to identify cost saving opportunities.
Executive Partner, National Employee Benefits Practice Leader
More than 27 years of employee benefits experience
Previously led national and large account business for Horizon Blue Cross Blue Shield of New Jersey