The recently enacted Inflation Reduction Act (IRA) includes several provisions aimed at lowering prescription drug prices for those on Medicare and reducing drug spending by the federal government. But these cost reductions for Medicare may lead to employers and their employees paying the price.
With these reforms, the Centers for Medicare and Medicaid (CMS) will finally have the ability to — and will, in fact, be required to — negotiate the price of drugs with pharmaceutical companies, which should lower the cost for both CMS and Medicare beneficiaries. The consequence of not “negotiating” or accepting the CMS price would be the equivalent of a 95% tax on the Manufacturer’s Medicare revenue. At the same time, drug makers will be forced to pay rebates to Medicare if drug prices outpace inflation. The new law also caps the cost of insulin at $35 per month for Medicare beneficiaries and total out-of-pocket spending on drugs at $2,000 annually.
This is an impactful step for lowering the cost of health care and making it so that more people have access to the drugs they need. Right now, nearly 13 million Americans a year skip or delay filling prescriptions due to their high cost, 18% say they’ve chosen not to fill a prescription due to the cost in the last 12 months and 85% don’t even know a drug’s price before reaching the checkout counter.
But, as Medicare negotiates down the price of drugs for its beneficiaries, pharmaceutical companies may have to simply shift some of the losses onto commercial payers, leading to higher drug costs for employer-sponsored plan members. We’ve already seen this scenario play out in health care, as Medicare pays considerably lower rates for the same service compared to commercial plans, with hospitals and providers often increasing charges for employer-sponsored plans to make up for the difference.
Roughly half of all Americans are insured through an employer-sponsored health plan, and just 14.2% are covered by Medicare, which means these cost shifts could impact a large portion of the population. While this isn’t to say prescription drug cost reform isn’t warranted — it certainly is — creating a pricing divide only helps some at the potential expense of many. Beyond this cost shift, there is also the potential for increased health care costs to be borne by employers as a result of reduced investment in new drugs that improve health and save lives.
The prescription provisions of the IRA are set to begin taking effect in 2023 through a phased-in approach. But there are five steps benefits professionals can take now to help offset the burden of any potential increases:
- * Demand transparency from your Pharmacy Benefits Manager (PBM). PBMs are supposed to function as a consultant to optimize plan efficiency and costs. But many turn a huge profit by pocketing drug rebates, which creates an incentive for them to keep higher-cost drugs on the formulary. Meanwhile, many PBMs also engage in spread pricing with the PBM again pocketing the markup. Talk with your PBM to understand the terms of their service, negotiate the details related to what portion of rebates get passed on to you as the plan sponsor, and insist that they either eliminate or minimize spread pricing.
- * Work with your PBM to understand pricing data. As the plan sponsor, you should own your own data, or at least have access to it through the agreement with your PBM. And your PBM should work with you to analyze and understand the data and look for opportunities. For example, the PBM should help you identify where the highest plan costs are coming from and ways to minimize those costs while optimizing utilization. In this case, you could establish rules that automatically request to substitute a lower-cost alternative drug with the same or better outcomes.
- * Educate employees about how prescription pricing works. One of the most important things we can do to lower the cost of drugs for everyone is to shed light on the complexities of drug pricing. Educating employees on why drugs are so expensive, why some are more costly, and most importantly, how to ask for appropriate, lower-cost alternatives will empower them to navigate the system. For example, employees may not be aware that paying out-of-pocket in cash could cost them less than using their benefits, particularly if they have a high deductible health plan. And many may not know they can follow-up with their doctor to inquire about lower-cost alternatives, rather than just biting the bullet at the cash register.
- * Incentivize better health through wellness programs. One of the best ways to lower the cost of prescription drugs is to reduce the need for them. Offering wellness benefits such as healthy eating programs, exercise incentives, and mental health support can help reduce some of the chronic conditions that drive high drug utilization, such as hypertension, obesity, heart disease, diabetes, and mental illness. Providing employees with the resources and incentives to take better care of themselves can go a long way toward reducing the cost of medical care and prescription drug needs.
- * Give employees tools to empower more informed choices. Making employees aware of drug price complexity and alternative options is part of the solution — but giving them tools to understanding pricing options on their own empowers them to take control of their prescription experience. Consider adding a prescription management and transparency app to your benefits offering that provides detail on the cost of prescription drugs at the moment their provider prescribes them. Our recent study finds 73% of patients would be more likely to talk to their doctor about lower-cost alternatives if they knew the price in advance. Providing your employees with pricing information and choices helps them know what to expect before they visit the pharmacy counter, reducing the risk they’ll abandon prescriptions at the point of purchase and get the vital drugs they need to maintain the best possible health.
With the Inflation Reduction Act is set to take effect in 2023, now is the ideal time for HR and benefits managers to provide information and resources to employees to help them make the most of their benefits plan. By engaging employees and putting the right tools and processes in place, companies can not only lower drug costs today and be well positioned to offset the impact of future increases but can also better support their employees.