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Rising drug costs are taking more of every health care dollar

Originally published in The Tennessean, August 2018

One of the most common ways we experience the impact of rising health care costs is when we visit the pharmacy. For BlueCross BlueShield of Tennessee members, it’s the most commonly used benefit, with 8 of 10 members filling at least one prescription last year.

We recently shared that covering pharmacy claims accounted for 10 cents from every premium dollar we collected in 2017. There are two important caveats. First, we only handle pharmacy benefits for some lines of our business. Second, that 10 cents doesn’t include drugs that are administered in medical settings like a hospital or an outpatient oncology center.

These drugs administered in medical settings, and in particular a subset of complex medications we call “specialty drugs,” are where we’re seeing the sharpest cost increases. And they are becoming a bigger focus since managing costs on behalf of all our members is core to our mission.

In fact, when you look at the data for our insured, employer group plans, you discover that drugs have become the single leading cost driver.

Drug costs accounted for 30.1 percent of what we paid out on behalf of members in our insured group plans last year. 

For comparison, inpatient hospital services represented 25 percent of our claims costs for the same set of members. Physician services were next at 24.6 percent.

Just five years ago, this wasn’t the case. Drug costs accounted for 24.1 percent of claims costs for our commercial members in 2012 — meaning drugs have become a bigger slice of an already growing pie.

What accounts for this shift? Are Tennesseans taking more drugs? That’s part of the story. In 2012, the average member received 12 prescriptions per year, and that number grew to 15 per year in 2017.

The bigger issue is cost. Drug costs are growing faster than overall medical inflation, which is in turn growing faster than the cost of consumer goods overall. 

First, we’ve seen a sharp increase in costs for the drugs you pick up at the pharmacy. Since 2008, brand name drug inflation has increased 15 times faster than the Consumer Price Index. If you applied the same rate of inflation to a gallon of milk, you’d be spending around $12 instead of $4 or $5.

Cost growth is even more pronounced in the medical drug category, where we’re seeing inflation of around 13 percent already in 2018. In other categories of spending, like physician or hospital services, the figures range from six to eight percent.

Often, these medical drugs fall into the specialty category and are used by a small number of members. For example, just 1.6 percent of the prescriptions drove 79 percent of medical drug costs last year. And specialty drugs could make up two-thirds of our drug costs by 2020.

Many of these therapies represent tremendous scientific achievements and are offering hope to members who didn’t have treatment options in the past. And there are even more promising drugs on the horizon for Tennesseans.

We want to provide access to these life-changing medications when the evidence supports their use. Our medical policy decisions, developed in partnership with the provider community and based on scientific consensus, are guided first by the desire to ensure safety and efficacy.

At the same time, we have a responsibility to all our customers and members to find ways to balance access to care and cost management.

We can make a difference if we work together. We’re encouraged by recent proposals at the federal level and look forward to joining health plans and practitioners, pharmaceutical companies and government agencies in efforts to make medicine more cost-effective.

About Natalie Tate, Natalie Tate, PharmD, Vice President of Pharmacy

A photo of the authorNatalie Tate, PharmD, oversees all aspects of the pharmacy management program and provides strategic direction for our teams charged with helping BlueCross members improve their health outcomes.

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