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The Pharmacy Explosion

You’ve probably seen a commercial on TV for Sovaldi, a breakthrough drug that can cure hepatitis C. Without a doubt, this drug has and will change people’s lives for the better, but there’s a catch: it costs about $1,000 per pill, and a full course of treatment is three months. Yes, you did the math correctly; at one dose per day that is close to $90,000.

This is only one example of an explosion of exciting and expensive new drugs to come on the market in recent years.

Cutting edge treatments for cancer, MS, and hepatitis C, among others, have propelled a new generation of pharmaceutical superstars into the headlines – and into your wallet.

If your company sponsors a self-funded health plan, these miracle drugs are hitting your bottom line – hard. Employees’ cost share is minimal, even in high deductible plans, leaving the lion’s share to be absorbed by your claims. Around the country and right here in Vermont, employers are seeing their prescription costs growing year over year, and becoming a higher percentage of their total health plan spend.

So what’s an employer to do? Obviously we want to provide our employees and their families with good health care; that’s why we offer benefits. However, we also don’t want to go out of business. Spending $90,000 on one member’s prescription bill could hinder company growth. While there is no silver bullet for this issue, there are a number of trends that are on the rise to help combat the drug cost crisis:

  • “Skinny Formulary” – The idea is simple: your insurance carrier or administrator has a list of ‘preferred’ drugs (called a formulary) which have preferred pricing both for you as the plan sponsor, and for your employees. Drugs not on the preferred list will be more expensive – sometimes significantly so – which drives your employees to look for and ask for generic or preferred brand drugs. Carriers are now developing restricted formularies, where the list of preferred drugs is lean and mean and designed to save your health plan money. Employees will be required to try generic or preferred drugs before being allowed to purchase the more expensive non-preferred brands. Savings of 1-2% on your health plan costs can be expected, depending on the stringency of the formulary. Both Blue Cross Blue Shield of Vermont and Cigna have released “skinny formularies” for optional election.
  • Four-tier Formulary – Many health plans in Vermont have a three-tier formulary consisting of generic, preferred brand, and non-preferred brand drugs. Depending on your carrier, a fourth tier may be available, for the very high-cost specialty drugs such as Sovaldi. This fourth tier would require prior approval, be subject to a higher degree of scrutiny for medical necessity, and would have a higher cost-share with the employee. The idea with this is not to prevent anyone from getting specialty drugs, but to strongly encourage employees to exhaust all other options and to ask the member to participate in the higher cost.
  • Stop Loss Contract – Be sure to check your stop loss contract to make sure prescription drugs are included in the individual stop loss. Some older stop loss contracts excluded Rx from the individual stop loss to reduce premiums, but in this age of extreme drug costs, you probably don’t want to be uninsured when it comes to prescriptions.

As more and more breakthrough drugs are hitting the market, it’s easy to get buried in higher costs. Ask your broker about these and other ways to combat the Rx cost explosion.