United States: Rising Drug Prices Call for Employer Vigilance

The Affordable Care Act requires that employers' prescription drug benefits cover at least one drug in every category and class in the U.S. Pharmacopeia (the official list of approved medicines). Yet recent research indicates that prescription drug prices are climbing more quickly than general medical costs. In response, employers need to be vigilant about these expenses and actively devise strategies to cope with their impact.

On the way up

How drastically are prices rising? "In 2015, nearly one-third of branded drugs experienced annual price increases of 20%," observed Express Scripts, the largest U.S. pharmacy benefit management (PBM) company, in its 2015 Drug Trend Report. The company forecasts 7% annual increases for "traditional" drugs for 2016 and 2017, and 26% annual increases for "key specialty" drugs over the same period.

Industry researcher Truveris, creator of the National Drug IndexSM (NDI), reports that brand-name drugs rose on average by 15% last year (up from 11% in 2014). Meanwhile, the far more costly "specialty" drugs rose 9% and generics went up 3%.

That low reported average cost increase for generics may be misleading, however, because it masks price spikes within certain drug classes. For example, in 2014, when the NDI for generics rose by 5%:

  • Generic drugs treating muscle pain and stiffness shot up 32%,
  • Generics treating heart disease jumped 24%, and
  • Generic drugs treating infections rose 12%.

"These spikes are troubling in that they disadvantage particular patient groups," stated the Department of Health and Human Services (HHS) in its Understanding Recent Trends in Generic Drug Prices report, issued in early 2016. The agency offered a variety of explanations for the disparities — including small markets with limited entry; the impact of mergers, acquisitions, and market exits; the ability to obtain new market exclusivities; and distribution activities.

The HHS report does point out that the cost of some generics has decreased, offsetting price spikes in other drug categories. But the decreases "exert no sizable influence on overall drug spending."

Public and private efforts

Several states — including California, New York, Maine, Vermont, Maryland and Delaware — have jumped into the fray in an effort to control costs. Typically, their approach has been to pass laws limiting employees' exposure to the most costly drugs. On the private sector side, some PBMs are trying to zero in on the most expensive, heavily used drug treatments for conditions such as high cholesterol, cancer and hepatitis.

Express Scripts, for instance, calculates that "unmanaged" pharmacy benefit programs experienced an average 12.9% cost increase last year, contrasted to a 5.6% increase for "managed" plans and 3.3% for its own "tightly managed" plans. The company in its 2015 Drug Trend Report describes its approach as employing "a combination of clinical programs and strategic reimbursement solutions." For example, its cancer program seeks to address "inefficiencies in the market, whereby some cancer treatments produce a wide range of outcomes across different indications and treatment scenarios, yet prices charged remain the same."

Promoting generic drugs through benefit plan design incentives is still the most important source of cost control, according to Express Scripts. "Encouraging use of generics over more expensive brand alternatives, when clinically appropriate, keeps costs down and helps patients adhere to their prescribed therapy."

Expansion of tiers

Another good source of data on this topic is the 2015-2016 Prescription Drug Benefit Cost and Plan Design Report by the Pharmacy Benefit Management Institute (PBMI). It reveals how employers are encouraging employees to use generic drugs, as well as share in the overall costs of their drug benefits. Many employers are adding more price tiers — in other words, varying benefit levels based on specific versions of drug treatments used.

For example, in 2015, 10% of surveyed employers used a four-tier schedule, up from just 1% in 2008. But that growth is coming at the expense of three-tier plans, which fell to 44% last year from 68% in 2008. The once dominant two-tier pricing schedule, consisting only of one price for generics and another for brand drugs, has become a mere blip on the screen, with only 2% of employers using it.

Also according to the PBMI report, in 1985 the average co-pay for retail-purchased generic drugs was $10, $20 for "preferred" brands and about $57 for nonpreferred brands. The $10 average generic drug co-pay has remained essentially constant since 2000, while the other categories — particularly nonpreferred drugs — have risen significantly.

Along with offering co-pays, using a deductible amount is an increasingly popular cost-sharing arrangement. Per the PBMI report, 36% of employers' drug plans featured a deductible, up from only 14% in 2014. At the same time, however, more employers sought to put a cap on employee drug spending, with 33% using an out-of-pocket limit last year, up from 18% in 2014.

Overall, the PBMI report points to "evidence-based decision-making, including quantitative analyses of clinical and financial outcomes" as a critical tool for employers to effectively manage prescription drug benefits. The report also recommends "continuous monitoring, measurement, and, when necessary, adjustment of benefit design strategies in response to evidence."

Means to succeed

There's no doubt about it: Employers face a double-sided challenge in their efforts to keep rising drug costs from diminishing both their financial success and their employees' physical well-being. Although there's no easy solution, the first step is setting up the means to monitor and wisely react to the current prescription drug environment.

PLUS: Click here to find out the 2015 average spending changes for the customer base of Express Scripts, the largest U.S. pharmacy benefit management company.

To discuss how to actively devise strategies to cope with the impact of climbing prescription drug prices, contact Ron Present, Partner and Health Care Industry Group Leader, at rpresent@bswllc.com or 314.983.1358.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions