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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.