It seems that every financial update meeting I attend focuses on spending for specialty pharmaceuticals. This is a frequent blog topic in our company blog, FrenkelySpeaking, because it is such a significant driver of health care cost trends.

Recently, I reviewed a whitepaper on PCSK9 inhibitors. This is a new high-cost drug which, acting with statins (Crestor and Lipitor are examples), can lower cholesterol by up to 70%. In 2014, cholesterol lowering medications were the 9th leading category of drug spend. The use of these meds has reportedly reduced the occurrence of heart attacks by 30% and strokes by 20%.

But statin therapies cost $186 annually as compared with $10,000 for PCSK9 inhibitors. Who would argue that spending $10,000 is worth the trade-off of cardiac surgery? Likewise, who would dispute $90,000 for Sovaldi or Harvoni, drugs which might avoid a costly liver failure incident? A lot of employers, that’s who. To employers managing their employee benefit programs, these drug costs are a reality and the large claims are not a certainty. The illness may not materialize and if it does, will the employee still be with the company?

Also see: "Businesses should be cautious with reimbursing individual premiums."

This got me to thinking: How are drug prices set? Drug pricing is not as haphazard as you might think. Drug manufacturers look at uniqueness of the drug, competing options, and how much cost the drug might offset as compared with alternative treatments. In short, manufacturers charge what the market will bear. While this all makes sense, this analysis yields massive profits in the U.S. health care system for the best drugs. Pharmacy costs are 20% or more of total spend, so it is clear that massive profits will be a lightning rod for regulator attention.

There is a lot of discussion about U.S. health care costs as compared with the rest of the world, and pharmacy costs are a part of this. In some countries, the government just ignores the patent protection or finds other ways to pressure the manufacturer to sell drugs at a lower cost than they are available at in the United States. I would expect that U.S. drug pricing will be under the microscope as our health care system evolves. We will continue to watch this and make sure our clients are armed with the best advice on managing these rampantly escalating costs.

Hasday is chief operating officer of Frenkel Benefits, LLC, one of the largest privately held independent employee benefits brokers in the United States. Reach him at chasday@frenkel.com or (212) 488-0200, and read more from Hasday at frenkelyspeaking.com.  

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