Table of Contents

Foreword: Pharmacy as a Competitive Differentiator

Pre-COVID-19, 85% of self-funded employers cited rising drug costs as a considerable concern going into 2020.1 Prescription drug costs were increasing, the drug pipeline contained innovative brand and specialty drugs, and the high costs associated with those drugs were impacting peoples’ ability to afford their medications. One in five people reported they could not afford the cost of their medications.2 Then COVID wreaked havoc.

Employee safety concerns, virtualizing the workforce, furloughs, and everything else took priority. Most companies lost an entire year addressing their benefits costs concerns. Meanwhile, the pharmaceutical industry did not sit still. Prescription drug trend continued (and continues) to rise, with specialty drug costs introducing a new level of financial risk. The looming question going into 2021 is, what is the new normal going to look like for employers?

One thing is certain; employers can’t afford to ignore rising pharmacy costs any longer. Clients of every size and across industries will be increasingly turning to you for consultative advice and recommendations. If you are well-equipped to address their concerns with a pharmacy solution that meets their unique needs, you will find it to be a powerful competitive differentiator.

Chapter 1: Prescription Drug Utilization Trends

In any given year, following prescription drug utilization trends has its challenges. Reflecting on how COVID-19 has changed things, there are several key considerations to keep in mind when evaluating your clients’ 2020 drug trend data.

Changes in Enrollment – As the virus wreaked havoc on businesses and industries across the country, we saw member enrollment numbers shift up and down. For those impacted companies, enrollment shifts could mean a higher per member per month (PMPM) pharmacy benefits cost. As you evaluate any PMPM spikes over the last year, dig in a little deeper to see if it’s because of membership fluctuations and the prescriptions they are using.

Changes in Drug Mix – The most significant shift in 2020 occurred in acute to chronic condition prescriptions. With people sheltering in place for much of the year, there was a clear reduction in prescriptions for temporary ailments like sinus infections, strep throat, and muscle strains. However, there were more prescriptions for chronic conditions, including diabetes, high blood pressure, and other conditions that require daily medication therapy.

Drug mix matters because acute condition prescriptions typically are inexpensive generics or lower-cost brand drugs. Without those drugs in the product mix, the change in the plan’s average PMPM cost may be substantial despite reducing the volume of drugs. This phenomenon is likely short-term, as we expect the number of acute condition prescriptions to tick back up over 2021.

Changes in Refill Rates – Most of the pharmacy benefits managers (PBMs) relaxed their refill-too-soon policies in the first and second quarters of 2020 to ensure people had adequate quantities of essential medications on-hand. This influx of prescription drug claims in the first quarter of the year led to unexpected pharmacy benefits spending for many employers. While we don’t see strong evidence of stockpiling, it’s appropriate to expect refill rates to shift back to 70%-80% in 2021. For example, with a 70% refill rate for a 90-day prescription, people will need to wait until day 63 to refill their medication, which is appropriate.

Changes in Quantities Dispensed – There was a notable shift from 30-day to 90-day maintenance medication fills and increased mail-order prescriptions. These trends likely will continue throughout 2021. Because of the convenience and potentially lower costs, once members make that shift, they are more likely to stay with it.

Changes in Progressive Trend Expectations – Looking at your clients’ trend from quarter to quarter, you usually see a natural trend progression throughout the year. It’s a natural part of how benefits are designed today, with deductibles and people paying more at the beginning of the year. In 2020, however, we saw a discernable difference in how drug trend progressed. By December, it was beginning to shift back to what we consider a more normal range for the year but not quite back to net-neutral of what we expected without COVID-19. This change is indicative – and encouraging – that we might be starting the year with a trend pattern more in line with what we would typically see.

Rx In-Focus: Drug Price Hikes Continue

With drug utilization slowed down significantly because of the virus, drug manufacturers saw no reason to slow down the chance to capitalize on the opportunity to raise prescription drug prices in 2020 and again to start 2021. Drug price increases are not uncommon practices taken by drug manufacturers over a year, usually occurring at the beginning of the year and mid-year. The size of the price increases is not out of line with previous years. What’s alarming is the higher number of drugs targeted for price hikes and that the increases were not related to any new clinical innovations.

Drug manufacturers raised drug list prices to start 2021 by an average of about 5.1%.4 While this is lower than the 5.8% average list price increases to start 2020, several are large and apply to some of the most commonly prescribed medications on the market.

Chapter 2: COVID-19 Challenges & Cost Implications

For most employers, the financial uncertainty brought on by COVID-19 has caused their well-intended budget forecasts to be unsteady at best. Some businesses face tough decisions, including whether to furlough staff, reduce employee pay, or cut employee benefits. As companies across industries continue to navigate the pandemic pressures, several factors contribute to the budgetary constraints facing self-funded employers.

Employed patients make up at least 30% of the nation’s total cases and counting. More than half of those cases are employees of small companies with fewer than 500 employees.5

Higher risk member population – We expect companies to see higher healthcare costs because of the virus, including hospitalizations. Businesses with employees in high-risk categories, such as older workers, front-line workers, or those more prone to chronic illness (e.g., the logistics industry faces a well-known challenge with diabetes and pre-diabetes impacting long-haul truck drivers) will suffer a larger impact. Employees who are infected and recover from COVID-19 may face different health issues long-term, and we do not yet know what new high-cost drugs may come to market to address them.

Delayed medical procedures – Reductions in cost due to lower utilization of specific medical services may offset some unplanned COVID-19 expenses. For example, postponed or canceled elective surgeries and procedures, physician office and clinical lab visits, and other outpatient services may help counterbalance an employer’s added costs for COVID-19 testing and treatment. This shift may help employers manage some of their medical benefits costs; however, this will in turn have a negative impact on hospital margins (see Rx In-Focus: Hospitals in Crisis) and therefore, your hospital clients.

Cost of COVID-19 therapies – Production of COVID-19 treatments will ramp up over time. Some of the lower cost therapies won’t do much to move the needle, but some of the newer therapies that are being explored right now, including Veklury® (remdesivir), which was approved by the U.S. Food and Drug Administration (FDA) in October 2020 for the treatment of COVID-19 in patients 12 years and older who require hospitalization, are very costly.6

Cost of COVID-19 vaccine administration – During the initial phase of limited vaccine supply, federal funding authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act covers the ingredient cost of the COVID-19 vaccine. As established in the CARES Act, members receive the vaccine at no out-of-pocket cost and no deductible, regardless of whether they get it at an in-network or out-of-network pharmacy, with employers covering the costs of vaccine administration. Employer Group Waiver Plans (EGWPs) can allow coverage for the administration fees but incur additional financial risk.

There’s no doubt that the next several months will be trying, and the vaccine roll-out schedule will be confusing. Each organization will have to make tough decisions in the best interest of its business, company culture, and employees. Leadership teams will have to decide how to get their people back to work safely and appropriately. They will be wondering how other employers are approaching the vaccine roll-out for their employee populations and looking to you for advice.

Rx In-Focus: Hospitals Facing Crisis

Hospitals have faced several challenges over the past decade. The payer mix changed, and reimbursement models continue to transition from a pay-for-procedure to a pay-for-performance model. Many hospitals have been challenged with tight profit margins and have experienced increased compression in the market. These shifts have led to more than 500 hospital mergers and acquisitions since 2008.7 Rural hospitals and health systems have been impacted significantly, with over 170 having to close their doors since 2005 due to financial duress.

Now, as a result of the pandemic, hospitals are facing critical cash and staffing shortages, as well as employee health and wellness concerns. Most have had to cancel higher profit elective surgeries, which they depend on to offset losses and sustain margins, for nearly a year. Hospital employees are under severe strain, as emergency rooms and intensive care units reach and sometimes exceed capacity, shifting medical-surgical units to COVID-19 floors and adding triage units in their parking lots.

Hospital leaders, tasked with finding cost-savings strategies, know that healthcare benefits are a crucial offering to recruit and retain top talent. The prescription drug program is used more than any other benefit, with 25% higher utilization than commercial plans.8 The dire situation deserves specific attention to address prescription drug costs and ensure appropriate utilization and medication safety for these essential workers.

The prescription drug program is used more than any other benefit, with 25% higher utilization than commercial plans.

Chapter 3: Executive Orders, Rulings, & Regulatory Changes


For years, health plans, employers, and policymakers have been calling for measures to lower prescription medications’ out-of-pocket costs. Before COVID-19, lawmakers worked on two key bills designed to help reduce prescription drug costs for payers and individuals: The Prescription Drug Pricing Reduction Act (S.2543), submitted by the Senate Finance Committee in September 2019, and The Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), which passed in the House of Representatives in December 2019. Both bills stalled in the Senate in 2020, partially because of a legislative shift to COVID-19-related federal aid bills. Numerous additional actions involving prescription drug pricing were announced, which could have implications for employer-sponsored benefits plans in 2021.

2020 Key Regulatory Actions & Rulings

Rutledge v PCMA SCOTUS decision In December, the Supreme Court of the United States unanimously ruled against the Pharmaceutical Care Management Association (PCMA) in favor of Arkansas Act 900, effectively deciding that states can regulate PBM reimbursement rates for prescription drugs. Despite expressed concern that state interference in the prescription drug marketplace might subject PBMs to dozens of state laws, the justices approved states’ ability to monitor PBMs reimbursements. Over the years, low pharmacy reimbursement rates for generic drugs resulted in thousands of independent pharmacies to close, especially in rural areas.

Closing the orphan drug exclusivity loophole – Under current law, the FDA can grant seven years of market exclusivity to an orphan drug if the developer doesn’t expect to recover the development costs from selling a drug. Current law also extends market exclusivity for a new version of the same drug without the drug developer having to show unprofitability again. In November, the U.S. House of Representatives unanimously passed the Fairness in Orphan Drug Exclusivity Act, which seeks to close that patent exclusivity loophole. The bill requires drug makers to prove that they don’t expect to recoup research and development costs through U.S. sales within 12 years to obtain the seven-year marketing exclusivity under the orphan drug designation. In February 2020, a companion bill bearing the same title was introduced in the Senate, but no action was taken to approve it into law.

HIV preventative coverage – The Affordable Care Act (ACA) requires most insurance plans to cover (at no cost to the member) a list of preventive services. One of those preventive services has been HIV screening for adults at higher risk of contracting HIV. For employer-sponsored health plans renewing after July 2020, The ACA also requires HIV medications to be covered as preventative treatment (PrEP). Fortunately for plan sponsors, Gilead Science’s popular PrEP medication Truvada® became available as a generic in October. However, data analysis shows that Gilead retained much of the Truvada market share through its new PrEP drug, Descovy®.

Insulin changed to biologic – Diabetes is the most expensive chronic condition in the United States, with one in four healthcare dollars spent on care for people with diabetes. Over the last decade, the increasing cost of insulin has made it more difficult for consumers to pay their out-of-pocket expenses for treatment. An essential step to increase insulin market competition went into effect when the FDA transitioned insulin to being regulated as a “biologic.” By doing so, the FDA believed it could stimulate manufacturing innovation and lead to the approval of more biosimilar insulin products.

340B drug discounts directive – In another move to make diabetes medications more affordable, a Trump-era Executive Order directed Federally Qualified Health Centers (FQHCs) to pass the 340B pricing discounts they receive for insulin directly to patients as a requisite to continue receiving grant funding. The directive also applied to 340B discounts for injectable epinephrine. This change was slated to take effect on Jan. 22, 2021, but the new HHS administration put a temporary halt on the ruling until at least March 22, 2021, to allow officials more time to evaluate the ruling and community health centers more time to develop plans to comply.

Drug rebates ruling – Another Executive Order established new safe harbors that would permit health plan sponsors, pharmacies, and PBMs to apply discounts at the point-of-sale to lower out-of-pocket costs. Rebate dollars owed from drug manufacturers would get passed directly to patients when they buy a medication instead of sent to PBMs and insurers – many of whom already pass the negotiated rebates they receive on to plan sponsors who decide how to utilize those dollars. This drug rebate change could have the most direct impact on commercial payers who benefit from manufacturer rebates on high-cost prescription drug products used by their members. Set to take effect in 2022, implementing the rebate rule remains questionable because of conflicting reports related to savings potential for federally sponsored benefits programs.

Drug importation ruling – In September, HHS finalized a rule for states, Indian tribes, and potentially pharmacists and wholesalers to import certain drugs from Canada upon submitting a proposal to the FDA for review and receiving authorization to do so. The ruling specified that all eligible prescription drugs entering the U.S. have to meet U.S. labeling standards and pass authenticity tests to ensure that they meet established specifications and standards. With the increasingly high cost of prescription drugs, importing drugs into the U.S. has become a popular idea among consumers, some state and federal legislators. However, multiple legal and economic concerns exist of drug importation as a sustainable solution to high drug prices, including Canada announcing severe drug shortages and new policies limiting mass prescription drug exports.

International Drug Pricing Test Policy – Stopping short of instituting the International Pricing Index plan proposed in May 2018, a Trump Administration Executive Order called on HHS to create a “Most Favored Nation” pricing test policy. The measure allows the U.S. to piggyback on the discounts negotiated by drug manufacturers and other developed nations for 50 high-cost Medicare Part B drugs administered in doctors’ offices. Because Congress bans Medicare from negotiating directly with drug makers, this rule provides an avenue for the government to cap costs of those specific prescription drugs for seven years. HHS planned for the test program to begin in January 2021, during which it planned to determine whether the payment cap alleviates poor clinical outcomes and increased spending on high-cost drugs. However, that plan was temporarily blocked by a federal judge in December, pending legal action by PhRMA, the largest pharmaceutical industry trade group.

Rx In-Focus: What to Expect from the Biden Administration

Drug prices and drug pricing transparency have been important topics in politics. As the largest payer of prescription drugs, the U.S. government has struggled to find a solution to the nation’s high drug prices and healthcare costs in general. Former President Donald Trump spent much of his last six months signing Executive Orders to fulfill his drug pricing campaign promises, many of which hang in the balance.

Given early signs from the campaign trail, it seems that President Joe Biden will focus more on healthcare as a whole instead of zeroing in on pharmacy right away. Among Biden’s early priorities is addressing COVID-19 before moving on to healthcare and prescription drug-related initiatives. Lowering drug prices is a concern, but the Biden administration is not expected to defend Trump’s Executive Orders against the multiple lawsuits they face. Instead, under new HHS Secretary Xavier Becerra, the agency is expected to take a consensus-building approach to developing strategies that address prescription drug pricing issues.

Chapter 4: Specialty Drugs & the New Drug Pipeline

Specialty is a topic on the top of every consultant’s and employer’s mind. Just 20 years ago, specialty drugs weren’t much to talk about until Humira® came on the market. Now, the reality for most employers is that specialty drugs account for 50% to 60% of pharmacy benefits costs but are utilized by just 1% to 2% of their members.3

Specialty drugs are vastly more expensive than their traditional drug counterparts, often costing more than $3,500 per month, per patient – and some costing much more. The average annual cost of 61 widely used specialty drugs for treating chronic conditions reached roughly $79K in 2017.12 This is nearly triple the average annual cost for the same specialty drugs in 2006.

New Drug Pipeline

Employers should be aware that the new drug pipeline focuses on manufacturer investments in developing high-cost brand, specialty, and orphan drugs. With more than 8,000 drugs in development, new drug launches will reach historically high levels over the next several years. New medicines will address significant unmet therapy needs across various disease states, including cancer, autoimmune conditions, and metabolic and nervous system disorders.

There are several drug classes with notable products in the pipeline for 2021-2022: oncology, hematology, immunology, inflammatory diseases, and genetic disorders. Data analysis over the last 20 years shows that specialty drug costs increase at a similar rate on the pharmacy and medical side.14 Whether utilized in the medical channel or pharmacy channel, some of the top drugs to look for this year include new indications for existing drugs, and new treatments for hereditary angioedema and hemophilia.

New indications for existing drugs– This area of the drug pipeline may not be looked at closely but is worthy of attention. One example is the drug Rinvoq®, which is approved for Rheumatoid Arthritis. Rinvoq is pending FDA approval for moderate-to-severe active psoriasis and atopic dermatitis. The atopic dermatitis indication brings enormous potential for financial impact. Dupixent® skyrocketed to the top of many claims files in 2020, and this year may see Rinvoq hit the market, along with others, to treat atopic dermatitis.

New treatment for hereditary angioedema (HAE) – HAE is a disorder characterized by recurrent episodes of severe swelling commonly located on limbs, face, airway, and intestinal tract. Haegarda®, Takhyzro®, and Ruconestare® are taken routinely to prevent attacks, while Firazyr® is used for acute attacks and should be used on an as-needed basis. New to the HAE market, Orladeyo® is an oral medication approved in late 2020, available at a somewhat lower price point than existing self-injectable or infusion products. As a result, Orladeyo is expected to capture 20% to 30% market share for HAE treatments in 2021. This category also may see new market entrants from other existing drugs receiving FDA approval for treating HAE.

New gene therapies for hemophilia – Many gene manipulation therapies are centered around CAR-T therapies, which take products from the human body, modify them, and infuse the product. Currently, only two pure gene therapy players are in the market – Luxturna© and Zolgensma© – but their long-term efficacy is unknown. Products in the pipeline of hemophilia treatments with a single infusion, and possibly up to 5-7 years or more of efficacy, will reduce the need for factor products. There is a strong ROI here, potentially, but payment methodologies have not yet addressed the high up-front cost. Many PBMs exclude gene therapy products from their formularies, and many employers exclude them from their plans.

Chapter 5: Risky Specialty Drug Management Strategies

The transformative advancements in medicine are exciting, but the associated costs can be excessive. There continues to be a push to find ways to address the growing impact of specialty medications on employer healthcare costs. Several recommended strategies are proven effective for managing high-cost specialty drugs today: an in-depth review of specialty rebate terms and pricing guarantees, use of manufacturer assistance program funds, and independent specialty drug utilization management.

Despite these clinical oversight strategies’ successes, two controversial solutions are being increasingly explored in the market: carving-out specialty medications or excluding specialty drugs from the pharmacy benefits. If your clients are exploring these options, it’s essential that you thoroughly analyze the value before making a decision. Each carries potential employee retention and legal ramifications, not to mention ethical concerns.

Excluding specialty drugs – When specialty medications are excluded from the covered benefit, the member is entirely on their own to cover their specialty medication expenses. The PBM system rejects claims as not covered, and drug discounts are not applied. There is no payment solution for any of the products not covered and no ability to request an exception or medical necessity or override the PBM system – even if the employer approves and asks for it to be covered. If employers choose to exclude some specialty drugs, a custom exclusion list is needed and requires custom coding and support for drug list maintenance, reports, and overrides.

Carving-out specialty drugsWhen specialty drugs are carved-out from the pharmacy benefit, a third-party vendor administers the covered benefit, and specialty drug coverage is excluded from the PBM perspective. Coverage is not guaranteed for all products, requiring employers to maintain a specialty benefit for out-of-scope products and members that do not qualify. This arrangement affects the plan’s existing network rates, rebates, and other cost-savings programs in place with the PBM. Additionally, participation in a specialty carve-out program is subject to the member’s income and the availability of needs-based funding. Program administration also requires involvement from the HR team.

Specialty carve-out providers often speak to how simple it is to exclude specialty drugs from the pharmacy benefits coverage and may give the impression that they cover all specialty medications. However, the reality can be vastly different depending on the employer’s existing pharmacy benefits contract and member population. When considering the value of excluding or carving-out specialty drugs for your clients, make sure you understand the details of the real problem they wish to solve. Why are they considering either of these options and what results are they trying to achieve? The details matter, so it’s essential to do the math and analyze both the employer and member impact.


Rx In-Focus: The Expanding Role of Rx Data Analytics

With a still relatively uncertain future ahead as things begin to normalize from the COVID-19 pandemic, your clients will be looking to you now more than ever to guide them with innovative solutions to lower their prescription drug costs. The most significant opportunity to find those savings opportunities is through a meticulous analysis of their pharmacy benefits contract and prescription drug claims data. It is essential to analyze the plan’s prescription drug utilization data to understand what is driving the group’s specific trends and patterns.

As you look at the data set, an important part of your analysis includes deciphering what resulted from COVID-19 and what is part of the group’s new normal. Only then can you begin to consider which clinical programs to put in place to manage appropriate utilization for 2021 and beyond. Undoubtedly, your employer clients will need a risk management solution that ensures that members utilize only the most clinically effective, lowest cost medications. Working with an independent partner is the only way to find out whether the market forces discussed above are plaguing your clients’ benefits programs and what options they have to rectify any potential risk areas before it’s too late.

RxBenefits: Fully Optimized Pharmacy Benefits

RxBenefits is the industry’s first and only technology-enabled pharmacy benefits optimizer (PBO). For 25 years, we have served as a trusted pharmacy adviser to employee benefits consultants and the pharmacy benefits solution provider of choice for self-insured employers. We offer employee benefits consultants a superior alternative to traditional PBM arrangements, combining market-leading purchasing power and contracting expertise with independent clinical advocacy to better manage pharmacy trend and keep the pharmacy benefit affordable. A high-touch service model ensures clients, employees, and dependents receive exceptional care and enjoy a world-class benefits experience.