Volatility in the pharmaceutical industry, including the expanding specialty drug pipeline, increased utilization of GLP-1 medications, and persistent supply chain disruptions, are contributing to rising costs for employers. Before an employer makes changes to its employee benefits plans, it’s important to understand the factors driving these industry dynamics, how employees are impacted, and the best strategies employers can deploy to counteract downside and risk. 

To start, employers shouldn’t just accept that healthcare costs are rising. They should investigate the specific factors impacting their plan, including waste. Cost-shifting to employees is not a viable option because employers are already battling market competition to attract and retain talent. Rising costs are a wake-up call to question pharmacy benefits to date and consider an alternative approach.  

Traditionally, employers have looked at what’s already available in the market, adopting cookie cutter pharmacy strategies that are often guided by their vendor, the Pharmacy Benefits Manager (PBM). But PBMs are not impartial, and like all businesses, they have a responsibility to generate profits — profits which are rarely (if ever) tied to the financial performance of their clients. In fact, many PBMs have conflicts of interest regarding rebates, drug pricing, and pharmacy networks that pit their financial gains against the interests of employers.  

Employers should not be looking to their vendor to guide them — especially one with conflicts of interest. In a system designed to drive up utilization and cost, employers should be relentless in seeking expert guidance from a partner who can design coverage that’s centered on safety, efficacy, and appropriate cost reduction.  

As employers consider new benefits coverage, here are the top issues they face: 

GLP-1 drugs such as Ozempic and Mounjaro were originally developed to treat diabetes, a condition that affects a large population of Americans. Clinical studies later revealed significant weight loss benefits for these drugs, as well, which led the drug manufacturers to market these drugs separately as Wegovy and Zepbound, respectively.  

Demand for GLP-1 drugs is growing rapidly, driven by patients seeking effective treatments for both diabetes and weight loss, which is leading to significant cost increases. Employers face pressure from employees to cover GLP-1 drugs, often citing long-term health benefits such as reduced cardiovascular risk. Though initial cost controls followed supply chain shortages during the pandemic, those shortages have now eased, leading to a spike in both use and spending. This renewed demand comes as the next generation of GLP-1 drugs is in development — oral medications, as opposed to injections. This is expected to further increase demand and costs if widely covered. 

To help manage costs for coverage of GLP-1 drugs for weight loss, employers can consider a few possibilities. First, they could require an individual body mass index (BMI) of greater than 30, which aligns with the Food and Drug Administration’s approved label, or set a higher threshold, such as a BMI of 40 or greater. Second, an employer could elect to impose a lifetime coverage limit, such as 12-18 months. Third, an employer can create a new benefit category for weight-loss drugs with higher cost-sharing, such as a 50% co-pay. All of these options depend on flexibility with your PBM. 

Like GLP-1 drugs, specialty drugs known as biologics are driving up costs for employers. Biologics are large molecule proteins with a complicated manufacturing process that are most often used to treat complex diseases such as cancer or autoimmune disorders.  

Biosimilars are low-cost alternatives to brand name biologics that are beginning to enter the fast-growing market. However, adoption of biosimilars has been slow, mostly due to prescriber comfort with and preference for brand name drugs, as well as patient reluctance. It’s also slow because biosimilars are less profitable for pharmacy benefit managers as compared with the associated “reference product” or “brand version.” 

To be included on a PBM’s list of covered drugs, drug manufacturers frequently offer rebates on their expensive brand-name medications. Traditional PBMs, however, do not pass the full amount of that manufacturer rebate along to plan members: They keep a chunk of it, and sometimes a significant chunk, as profit. That’s a powerful incentive to promote branded versions over lower-cost biosimilars. 

As the market adjusts, employers should sprint to covering biosimilars, which will encourage more supply and ultimately drive down costs. They should also strongly consider excluding the branded version of the medication to mandate utilization of the low-cost options (that are equally as safe and effective). 

Another factor that is impacting employers is a lack of accountability. So much of the dialogue right now is about making prescription drugs more affordable. But employers often lack a deep understanding of supply chain dynamics, leading to a reliance on cookie cutter benefits in a market that rewards discounts and rebates, not patient outcomes. 

A good deal on a drug that doesn’t work isn’t a good deal. Employers need to take a holistic view and consider the best price alongside pharmacy services that help a patient achieve their health or clinical goals. 

To introduce more accountability and shift to an outcomes-based model, employers could tie drug payment to validated patient outcomes, rather than just price discounts, and combine competitive drug pricing with pharmacy services to ensure patients reach their desired health goals. The Centers for Medicare and Medicaid Services (CMS) has implemented value-based care models into Medicare, but these frameworks have not yet reached the private market. Employers can and should create demand for such a model. 

With all of these considerations, it’s important to follow the money and know where your plan and employees’ hard-earned healthcare dollars are actually going. There’s a lot of evidence suggesting that many PBMs are material contributors to rising drug costs. There are perverse incentives that push PBMs to allow high-cost medications to go onto the plan, translating to higher costs for employees. 

We see cases where the PBM that’s processing a claim is also: making a profit from the claim administration, keeping some of the rebates, directing the prescription to go to a pharmacy that they own and monetizing the transaction at their pharmacy . Employers must demand more and better from their vendors. 

As a consultant, I don’t think my work really begins until after we’ve gotten the client into the optimal PBM arrangement that is free of these distracting conflicts of interest. From there, we work continually to hold that PBM accountable to the client’s evolving needs in this dynamic industry.  

Employers need somebody on their benefits team who understands those rapidly moving dynamics, as new products come to market and new regulatory issues arise. An experienced benefits advisor can help them navigate these complex industry challenges and develop a plan that aligns with their goals. Contact us today.