5 Ways for Cutting Employee Drug Costs

It’s a fact of life. Employees get sick. They go to the doctor, get a prescription, and soon they’re on the mend, or managing their condition, and back to work. However, while prescription drugs are helping your employees, they’re also likely infecting your bottom line—and the infection is spreading.

A 2013 study reports that for 71 percent of U.S. employers, nearly one sixth of their total health care budget is spent on pharmacy benefits.1 And chances are that figure will go up as more and more employees access drugs for chronic conditions brought on by unhealthy lifestyles, plus new designer drugs for conditions such as Hepatitis C, where a course of treatment can cost upwards of $80,000 a year.


Hep C drug spending Up 742.6 percent

2014 U.S. prescription drug spendingUp 13.1 percent
Specialty drug spending
(sinus infection)
Up 30.0 percent

Source: Express Scripts report, March 10, 2015


It stands to reason that the healthier your workforce, the fewer the prescription drugs they’ll need, the lower the absenteeism, and the higher the productivity. That’s why so many companies are stressing workplace wellness programs or preventive care. However, not every employer can afford such efforts, no matter how beneficial. Fortunately, there are steps employees can take to dramatically lower the cost of prescription drugs.


Cutting employee drug costs: Just what the doctor ordered

What follows are five value-based strategies—many endorsed by the National Business Coalition on Health (NBCH)—that companies can encourage their employees to embrace. Each takes into account that delicate balance between prescription costs and drug effectiveness.

1. Generic substitution

This refers to the replacement of a brand name product with an unbranded version of the same drug that uses the same active ingredient in the same way and amount. Many groundbreaking drugs are now available as generics, including Lipitor for lowering cholesterol and Plavix for preventing blood clots. The FDA estimates that generic drugs cost up to 85 percent less than their brand name counterparts.

2. Therapeutic substitution

When no generic equivalent is available, a brand name drug is replaced with one that is chemically different but has a similar efficacy and results.

3. Financial incentives

Many health plan benefit designs offer financial incentives (in the form of lower copayments) to encourage plan enrollees to select generic drugs rather than the more expensive brand name versions.

4. Value-based insurance design or benefit design

VBID, or VBBD as it’s also called, uses incentives to encourage enrollee adoption of healthy behaviors, high-performing providers, and evidence-based services. Benefit strategies align the drug formulary (the list of medications covered) and member cost-shares to encourage appropriate drug selection and use. For instance, Kaiser Permanente (formerly Group Health) often works with large employers to set no or low copays to encourage the use of chronic disease management drugs for individuals with chronic disease. And prescription benefits are often designed in tiers, with brand name drugs priced higher than generics. Employees seeking generic drugs receive the same medication benefits at lower costs.

5. Mail order

Many pharmacies offer their customers the option of ordering prescriptions by mail. Not only is mail order convenient, it saves your employees money and helps bring down the total cost of prescription drugs ascribed to your plan. For example, Kaiser Permanente allows workers to order up to 90 days’ worth of refills on many drugs at typically two-thirds the cost.


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