Employer-sponsored health plans are investigating the possibility of organizing risk pools to help finance the high cost of prescription drugs.
They are eyeing asking for government help in setting up risk pools that would help cover costs for so-called orphan drugs that treat rare diseases, as well as for high-cost gene and cell therapies. Risk pools are funds collected from groups of employers that would be used to pay for high-cost drugs.
Employers are particularly worried about high-cost drugs that can run more than $1 million. Even with stop-loss insurance, which covers high claims costs, employers can end up footing the bill after a drug is covered the first year.
High-cost specialty drugs now make up more than 53% of drug spending, according to the Midwest Business Group on Health. The average cost of specialty drugs has increased from $3,604 to $4,562 between 2016 and 2021, according to its data.
By 2030, annual gene therapy sales in the US are expected to reach $15.7 billion, according to a Precedence Research report.
Employers have been underwhelmed by the response from pharmacy benefits managers to their concerns.
Solutions suggested by PBMs include spreading drug costs out over time, Cheryl Larson, president and CEO of the Midwest Business Group on Health, said in an interview.
But those solutions “don’t change the cost,” she said. “If a health plan or a PBM can’t figure out a way to make money on something, they don’t do it, so they haven’t done anything.”
No. 1 Option
The “No. 1 option” that employers say would have an impact on reducing drug prices is risk pools, Larson said.
“They could pool their lives and get better pricing, especially if we did something with the government, or on our own directly with the drug manufacturers.”
Direct contracting with drug manufacturers may also be a possibility, she said.
Larson said a drug like Hemgenix could provide long-term value “because I’m not paying $1 million every year. And that’s what employers want pharma to focus on.” Hemgenix,
Employers want to see the value of particular drugs before they decide whether to cover them, she said. She cited new, high-cost glucagon-like peptide 1 agonists like Wegovy that help people lose weight as an example of drugs some employers are waiting to gauge efficacy before deciding whether to cover them.
Role of Government
Employers could fund risk pools themselves, but “I think we would need to get the government to jump on the bandwagon and say, ‘this is important enough that we’re going to help you fund this,’” Larson said.
“The value of a partially government-funded risk pool, whether it’s considered commercial for employers or not, is appealing to them,” Larson said. The Midwest Business Group on Health plans to talk with its employer members “about what this could look like,” she said. A list of 15 drugs or diseases could be covered by a national risk pool, and the group may ask Congress for financial assistance to do that, she said.
Many contracts with pharmacy benefit managers prevent employers from contracting directly with drug manufacturers, Larson said. But a risk pool could enter into such contracts, she said.
Federal legislation is likely needed that would provide the authority allowing employers to form risk pools, Larson said.
Rare Diseases
Employer risk pools to cover orphan drugs for rare diseases could be a way to start.
“There’s not that many drugs that serve these populations, but we are starting to see launches of products that are costing millions of dollars to treat these rare diseases,” Alex Jung, founder of Alex Jung Consulting LLC in Chicago, said in an interview. Alex Jung Consulting works with employer health plans.
“One in every 100 employers is going to have someone that’s got one of these rare diseases,” Jung said. “What’s happening is, because of the advancements in science, drug companies are introducing cell and gene therapies that treat rare diseases, but they’re introducing them at $3 million therapy costs.”
As of 2019, spending for orphan drugs was $58 billion, or about 11% of total prescription drug spending, according to the National Organization for Rare Disorders (NORD). That year the average annual cost of an orphan drug was $32,000, but only 1.8 million of the more than 25 million Americans with rare diseases were treated with an orphan drug, according to NORD.
Rather than individual employers taking the risk of such a financial burden, employers could petition the federal government to create a national risk pool to cover orphan drugs that could be funded among employers, potentially with federal help, Jung said.
Such drug coverage could be carved out of general medical plans, Jung said. “We want to carve them out because what’s happening today is one of these patients might bankrupt the entire plan, and it’s not fair to the other employees to have to cover a $3 million drug for one person.”
Funding to cover an orphan drug risk pool should be affordable for the federal government because the number of drugs covered are relatively low, she said.
Alleviating Problems
Creating risk pools for drugs to treat rare diseases could help alleviate problems caused by employers using other tactics to save money on high-cost drugs.
NORD is concerned about the “proliferation” of alternative funding mechanisms, under which employers deny coverage for specialty medications, relying on drug manufacturers’ patient assistance programs for help, Heidi Ross, vice president for policy and regulatory affairs at NORD, said in an interview.
“They draw down the maximum of the patient assistance that’s offered by the manufacturer,” she said. “The patient eventually ends up with the drug, but they end up going through a pretty significant hassle because they’re initially told that their insurance doesn’t cover this therapy.”
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