How Rising Drug Costs Are Challenging Employer Health Plans (And What You Can Do About It)

The landscape of prescription drug management has undergone a significant shift in recent years, and if you are a plan sponsor or broker, you've probably noticed prescription drug costs rising faster than ever. Two major shifts are particularly impacting plans right now and understanding these changes and how to respond can help protect both the plan budget and members’ health.

The Changing World of Specialty Drugs

The first trend reshaping employer-sponsored health plans involves how specialty medications are classified within benefit structures. Specialty drugs treat serious conditions like cancer, multiple sclerosis, and rare genetic disorders, traditionally managed through specialized pharmacies with enhanced patient support.

Recently, many specialty medications have been shifted into standard "brand name" drug categories. While this often improves convenience by allowing members greater access to these medications, it creates new cost management challenges for plan sponsors.

Reclassification affects pricing structures, rebate arrangements, administrative fees, patient cost sharing, and cost predictability.

The changing administrative and financial framework around these reclassifications impact the plan’s ability to forecast drug spend and may leave plans scrambling to contain shifting costs.

The GLP-1 Revolution

The second major trend is the explosive growth of GLP-1 medications. Originally developed for diabetes treatment, these drugs have gained widespread attention for their effectiveness in weight management and heart health.

Traditionally, employer sponsored health plans could expect pharmaceutical costs to increase around 8% annually, but GLP-1 medications have completely changed this equation. Usage has grown 100-300% year-over-year in some populations. Forecasts from pharmacy benefit providers account for this increased utilization by projecting trends upward of 30%.

The challenge isn’t that these medications exist or that they may provide genuine clinical benefits, it’s that their popularity has grown so quickly that effective planning and budgeting have become extremely difficult.

Smart Solutions for Benefit Brokers

Fortunately, there are concrete steps brokers and plan sponsors can take to better manage these evolving cost pressures through more robust oversight and monitoring processes.

1. Comprehensive Market Analysis Before Renewal

The most critical step is conducting thorough market analysis before renewing pharmacy benefit contracts. This goes beyond competitive bidding, it’s about understanding how plan-specific utilization patterns would perform under different contract structures and if the current contract meets market standards.

A comprehensive market check should include:

1. Detailed utilization analysis: Review which drugs the population uses and how specialty drugs are classified across vendors.
2. Contract structure comparison: Different PBMs handle rebates, fees, and classifications differently. Recognize that lower upfront costs might actually be more expensive based on the plan's specific drug mix.
3. GLP-1 specific analysis: Ask how each PBM manages prior authorization, step therapy, and ongoing monitoring for these high-cost medications.
4. Transparency requirements: Negotiate clear reporting on drug reclassifications, rebate pass-through rates, and detailed utilization data.

The lowest bid isn't always the best value. The plan’s focus should be on which partner provides the best tools to manage the population's specific cost drivers.

2. Annual Performance Reconciliation

Even excellent contracts need active management. Implement annual performance reconciliation comparing actual spending to contract guarantees in key areas:

1. Rebate performance: Verify the plan receives promised rebate guarantees
2. Specialty drug management: Confirm contracted medications are managed as specified
3. Pricing performance: Ensure category-specific guarantees are being met

This process should result in concrete corrective actions for any performance gaps, including rebate adjustments, fee corrections, or contract updates.

3. Ongoing Monitoring and Utilization Management

Given how quickly costs can change, quarterly or monthly reviews are becoming essential. Ongoing plan monitoring should include:

• Utilization trend analysis: Monitor drug usage regularly, with special attention to high-cost categories. Early detection of utilization spikes allows for faster intervention.
• Adherence monitoring: Ensure patients are taking medications as prescribed. Non-adherence wastes money and doesn't help employees achieve health goals.
• Price optimization: Regularly verified medications are dispensed through the most cost-effective channels allowed under the contract.
• Formulary optimization: Work with the PBM to ensure the plan formulary reflects the best clinical and economic options as the market evolves.

While the pharmaceutical landscape continues evolving, implementing these proactive strategies gives brokers and plan sponsors the tools to maintain control over pharmacy spend while ensuring plan members have access to the medications they need.

Combining smart contracting with ongoing oversight and active partnership management allows successful navigation through these challenging cost trends and protects both the plan’s budget and the member’s health outcomes.