The ever-rising cost of healthcare, particularly the hefty price tag associated with prescription drugs, is making a big impact to the bottom line of small business owners. Both companies and employees alike in this country have almost come to accept rising prices as an inevitable feature of a healthcare system that is very difficult to understand.
So, what exactly is driving prices up? Is it the cost of research and development? Is it Obamacare? Or, is it just good old-fashioned greed? Well stop the speculation, here are three industry trends we know are contributing to the skyrocketing price of drugs in this country.
Executive Summary of Drug Price Drivers:
- Fewer patents for old drugs are expiring: When patents for drugs expire, stiff competition with generics drives the costs of drugs down significantly. Between 2004 and 2013, generics saved the American health care system a whopping $1.5 Trillion dollars. With fewer patents dropping to the wayside in coming years, consumers expect brand name prices to remain sky high.
- More new, expensive, specialty drugs coming online: Specialty drugs designed for treating very specific and often rare afflictions account for only between 1 and 3 percent of all prescriptions. However, these drugs account for nearly 25 percent of prescription drug costs. As more of these expensive drugs hit the market in coming years, drug plan prices are sure to rise.
- Demographic aging: Simply put, America as a whole is grayer, sicker, and in need of more healthcare than ever before. On the flip side, a host of new drugs, particularly specialty drugs with patent protections, is set to come online. With increasing utilization and demand comes increasing costs.
- Existing conditions of market failure: The marketplace isn’t perfect and can be subject to seemingly contradictory forces. Many older generics, for example, were at one point so competitive that many drug companies only ditched them for profitable exclusive drugs. As a result, the surviving manufacturers have become a kind of gray-monopoly. Drugs such as Doxycycline, a workhorse antibiotic approved by the FDA in 1967, have increased in price from just $20 a bottle to more than $1,800.
Employer pharmacy costs rose 9.5 percent in 2015 and are projected to increase 10 percent this year. However, despite the rising tide of healthcare costs, of which prescription plans are but one wave, there are some strategies small business can pursue to blunt the “incoming tsunami”. One of the most effective strategies is to band together with other small businesses through a PEO to significantly increase the risk pool, thereby reducing costs while improving benefits offered.