Catalyst for Payment Reform

Health Care Cost Drivers: Pharmaceuticals

Health Care Cost Drivers: Pharmaceuticals

Last week, CPR explored the impact that health care prices have on health care costs—particularly in markets with less competition among hospitals and health systems. This week, we will explore another driver of the more than 5 percent increase per year in health care spending.


Did you know that U.S. pharmacy costs are the highest in the world? According to an analysis by Bloomberg, Humira, a pharmaceutical used to treat rheumatoid arthritis, costs $2,504.50 in the United States but only $569.64 in South Africa. This is because the U.S. does not regulate drug prices, unlike other countries. Drug companies negotiate prices with thousands of health plans separately, giving those companies more leverage to command higher prices.

In addition, there has been a dramatic increase in spending on very costly specialty drugs, which treat chronic or life-threatening conditions and cost as much as $10,000 a month or $1 million a year. In the last 20 years, the availability of specialty drugs has increased from 10 to 900. And while only about 1 percent of Americans use these pharmaceuticals, they account for 25 percent of overall pharmacy spend.

This issue isn’t going away. As more medical innovations come in the form of high-priced blockbuster drugs, employers and purchasers will increasingly be stuck in the tricky position of desperately wanting to provide their employee population with the best that medicine can offer while supporting a sustainable benefits plan.

We have yet to hear of a silver bullet for tackling this issue. So we are setting our sights on the tactics employers can try to put downward pressure on the system.  We know that some stakeholders are pursuing outcomes or indication based pricing, using payment reform to pay different amounts for the site of service, or implementing checks like prior authorization or step therapy.  CPR is determined to pinpoint what employers and other purchasers can do to maximize these options.  In the meantime, check out CPR’s Guide on Specialty Pharmacy: What Purchasers Need to Know.

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