Why Plan Sponsors Are Considering Alternative Prescription Drug Plans

In 2004, the nation's spending on prescription drugs was more than $200 billion. While this represents one of the largest segments of health care spending today, the good news is that pharmacy costs are moderating; growth in 2003 was 12.4 percent versus 19.7 percent in 1999. However, despite moderation, pharmacy costs continue to represent a significant portion of an employer's benefits expenditures.

Pharmaceutical manufacturers are often blamed for the high cost of prescription benefits. In reality, there is a complex array of factors influencing pricing that must be examined to find effective and meaningful solutions for employers and payers. Factors currently influencing price include:

• Federal and state legislation;
• Consumer trends within the marketplace;
• Increasing utilization caused by an aging population; and
• Growing demand as a result of society's fixation on prescription drugs as a cure for all ills.

To manage costs more effectively, payers are looking for solutions, and are often willing to try any option that appears to promise lower costs. Many of the newer drug benefit design options share a common theme; they place more responsibility and financial burden on the employee as a primary strategy to reduce costs to the employer.

However, employers cannot continue to shift costs to members as the sole tactic to reduce health benefit expenses. The industry must find ways to encourage employers to move beyond the latest benefit design trend to focus on strategies with the proven ability to manage costs and improve quality. These approaches will ensure that employers' pharmacy benefit management (PBM) programs are "customized" to better meet the demands of plan members and plan sponsors.