3 High-Cost Drug Trends That Drive Up Your Health Plan Spending

June 6, 2023

When it comes to managing benefits expenses, much of the focus tends to be on health plan usage while pharmacy spending often gets overlooked. With the continuous development of expensive new specialty medications and therapies, pharmacy coverage is set to become 50% of employer health plan spending within the next 10 years. Managing the financial impact of these emerging cost drivers will be critical in controlling benefits costs.

What’s Driving Costs?

Originally developed to treat complex or rare chronic diseases, mainstream specialty drugs have expanded from just a handful in the 1990s to more than 300 medications today, treating a variety of conditions. Drug manufacturers have also found a way to extend patents on new and high-cost medicines, effectively delaying the release of less expensive generics. This has allowed manufacturers to increase the price of medications virtually unchecked. The average annual cost of a specialty medication now exceeds $38,000.

Emerging Cost Drivers

Over the next several years, employers may look back at the high cost of specialty drugs as a drop in the bucket compared to the treatment innovations and usage trends that are set to significantly increase pharmacy spending:

Cellular and Genetic Therapies: These therapies have been developed to treat or cure specific diseases by modifying a patient’s genetic code. Ranging anywhere from $250,000 to $3.5 million per dose, costs for genetic therapies are much higher due to more complicated administration, the use of specialty pharmacies for distribution, and the life-altering nature of the treatments. Many also require in-patient hospitalizations, generating an additional health plan expense of $300,000 to $700,000 per claimant. With more treatments in the pipeline for FDA approval, these specialized therapies are highly likely to impact many more employers.

Off-Label Usage: Another potential cost driver for employers is the off-label usage of diabetes drugs for weight loss. Several injectable medications approved for use with Type 2 diabetes have also been found to contribute to weight loss. Referred to as glucagon-like protein-1 (GLP-1) receptor agonists, these medications mimic the GLP-1 hormone, which promotes insulin production and can help diabetic patients better control blood sugar levels. GLP-1 can also suppress appetite and prolong the sense of feeling full, resulting in patients eating less and losing weight.

While this class of drugs has demonstrated life-changing results for diabetics, it has also inspired thousands to try these medications off-label simply for weight loss. Priced around $1,200 per month for one dose, these medications usually require prior authorization from the pharmacy benefits manager (PBM) when prescribed to treat diabetes. However, they do not have the same restrictions when prescribed for weight loss. The growing popularity of these medications has led to shortages and increased cost exposures for employers.

Left unchecked, off-label usage can dramatically impact an employer’s bottom line. Employers should ensure that their PBM strictly enforces prior authorization requirements, or consider using a third party to provide such authorizations. Given the high cost and other alternatives, employers should strongly consider limiting access for off-label usage.