Pharmaceutical Cost Increases May Be Slowing

December 16, 2005
There may be a smidgen of good news for companies that worry about the skyrocketing costs of prescription drugs: Relentless growth rates may be losing steam. Projected pharmacy-related cost increases for 2006 are in the neighborhood of 11.8 percent--still a double-digit growth rate that significantly outpaces the Consumer Price Index, but a far cry from the record levels of 18.3 percent that rocked the U.S. just three years ago, according a recent survey of 70 health care insurers by Aon Consulting.

In fact, this is the first time since Aon began the survey four years ago that forecasts for pharmaceutical cost growth are lower than the 13 percent projected for medical expenses. Bill Sharon, senior vice president at Aon, attributes the slowdown to a potent battle that employers are waging against ballooning health care expenses. "Employers are at the end of their rope and are being more aggressive in tackling this issue," Sharon says.

One way employers are trying to rein in costs is by amending their lists of covered drugs. This process often entails substituting label drugs with generics, which tend to be less expensive. Furthermore, employers are strategically identifying drugs that do not treat medical conditions per se but are widely considered to be lifestyle enhancers, such as Viagra, and changing their status. Some companies are reducing their financial burden by asking employees who want to use these drugs to increase their share of co-payments. In some cases, employers are deciding to exclude lifestyle drugs from the list of covered medicines altogether.

Companies are also combating exorbitant pharmaceutical expenses by requiring employees to use mail order to purchase medications for chronic conditions such as high blood pressure. That tends to cut costs. In addition, employers are putting the squeeze on their pharmacy benefit managers, who in turn put pressure on drug manufacturers to drive down prices.

Other factors contributing to the reduced projections in growth rates include increased usage of consumer-driven health plans and successful implementation of three-tiered co-pay plans that stimulate purchase of generic drugs. Furthermore, patents on certain drugs are set to expire, which would expedite their development on a generic, less costly basis, Sharon says. In spite of the ground that is being gained, there is room for much more improvement, he explains, adding that 15 percent of total medical-claims expenses emanate from general pharmacy costs.

Gina Ruiz