Pharmacy Benefits 2020: Ready to Spend Half of Your Medical Plan Budget on Rx?


You move to a new town and walk into the local barbershop to get a haircut. You sit down to get the same trim you have had for years. You go to pay the barber and the barber says, “That will be $700.” You respond with, “Are you kidding me? I’m not paying that!” The barber says, “Why not, that’s the price, and I delivered the service.” To which you respond, “Where does it say that I have to pay $700? I would never have agreed to pay that for a haircut.” The barber replies, “Nowhere, that is just my price. But since you’re new to town, I will give you a 60 percent discount.”



“Black Box” Pricing

You would never tolerate that kind of business from your barber or hairdresser but the fact is, this is an everyday reality within the health care system. As a broker, you are confronted with this reality when selecting health care plans for your clients. Hospital and physician PPO networks, lab, MRI, and CT scans, among other things, are all subject to the “Black Box” of healthcare pricing, the great mystery of health care.

Nowhere in the vast, murky world of health care does this exist more than in pharmacy. In fact, pharmacy is the most utilized (average of 11 prescriptions per active member per year;50-plus prescriptions per retiree per year, the least understood, and yet the most complex of all health care benefits). Consider this: pharmacy experts predict two major dynamics will occur over the next three years:


  • By 2019, specialty pharmacy (those high cost, typically injectable drugs) will consume 50 percent of a health plan’s drug spend;
  • By 2020, the pharmacy will represent 50 percent of total healthcare spend for many groups.


There is no question that pharmacy is, and will continue to be, top-of-mind for those who are responsible for consulting on or administering employee benefits. We see the discussion and debate play out almost daily in the media, the trades, conferences, and boardrooms across the country with significant regularity.

Rising prescription drug costs and the need for transparency, comprehensive, and creative clinical management have triggered the attention of Amazon, the proposed merger and acquisition activity of Cigna and Express Scripts, as well as CVS and Aetna.

And while much has been written about the providers of pharmacy services, little has been discussed about the role and responsibility of the plan sponsor in addressing this challenge.

Executive and human resources staff are already stretched thin with myriad responsibilities. No longer can they continue to point fingers at the broker, the pharmacy benefit manager (PBM), pharmaceutical companies, or any other intermediary that works in the space. Pharmacy is no different than any other consumer good. And, how do you get vendors to lower cost? Stop buying the product.


What Needs to Be Done?

With pharmacy beginning to consume 20 percent to 30 percent of total medical expenses, it is critical that plan sponsors truly understand what they are buying. Collaboration between plan sponsors and expert advisors is essential to negotiating contract terms, identifying clinical opportunities, and effectively managing the benefit.


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