The almost $140 billion dollar a year prescription drug industry is an element of health care that simply can't be ignored by managers and brokers of benefits as they seek innovative ways of bringing value to their employees and clients.

In American health plans, prescription-related costs are usually 20% to 30% of the total cost. Furthermore, prescription costs are estimated to be rising by 10% to 20% each year. Most employer-sponsored health care plans contain a prescription benefit.

It's when the prescription benefits are utilized excessively that self-funded employers find themselves at financial risk. Americans increasingly are requesting more and more prescriptions from their health care providers, due in part to prescription manufacturers adamantly and aggressively pushing for usage of their pharmaceutical products. The middlemen in the prescription drug industry are the pharmacy benefit management companies that are trying simultaneously to satisfy both the drug distributors and manufacturers, and the employers and employees that are their end users.

The various aspects of prescription drug pricing must be understood thoroughly to understand the prescription drug industry fully. This is a lengthy and complex topic, but there are several key issues that can help benefit managers and HR professionals begin to better understand the industry.

One key issue is pharmacy benefit management, or PBMs. These create revenue in a couple of different ways, including drug margins and administering rebates or fees. Sponsors and employers are starting to question their PBMs as they're understanding such revenue-generating issues and are exploring more and more ways to produce cost savings amid the rising cost of health care. Unveiling and understanding the prescription industry pricing model has brought many calls for the PBMs to change their model.

However, the PBMs and drug manufacturers aren't the real bad guys in cost savings. Each has their own objectives, but the burden of these objectives is often shouldered by the sponsors, employers, and employees.

Real cost savings can be achieved by negotiated, aggressive prescription drug pricing. Considering today's market, an employer seeing just an 8% to 12% cost savings to their prescription plan could actually manage to save some jobs they might otherwise lose.

Properly structured transparency pricing, especially when combined with real prescription plan management, has the potential to reduce an employer's prescription risk and bring them substantial savings.
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