Pharmacy pricing is also shifting rapidly
The pharmacy market is also transitioning as lower drug prices continue to reduce rebates. And while some drug costs are declining, upcoming high-cost specialty therapies and the shift to more expensive specialty drugs will drive increased cost. At the same time, legislative and PBM changes are increasing complexity and reducing predictability in pharmacy cost management.
This is not a temporary disruption — it represents a fundamental shift in how pharmacy value must be evaluated, communicated, and budgeted.
With lower drug prices come lower rebates
Several factors are contributing to lower drug prices, including biosimilars, Medicare price negotiation, manufacturer price reductions, and regulatory pressure. While these dynamics reduce ingredient cost, they also reduce the need and ability to generate rebates.
As a result, rebate payments are declining, directly impacting predictability of plan sponsor budgets, even as underlying cost dynamics shift. In many cases, lower ingredient costs are offset by reduced rebate payments to plan sponsors, resulting in net neutral or modestly improved spend for the drugs directly impacted.
AMP cap removal & more pricing changes
The removal of AMP cap has contributed to lower list prices and reduced upfront plan and member costs. However, it also limits rebate opportunity and has led some manufacturers to adjust pricing strategies, including price reductions or product discontinuations. Additional government actions, including Medicare pricing reforms and most-favored-nation (MFN) pressures, are further influencing pricing behavior and reducing reliance on traditional rebate structures.
What is AMP cap?
AMP cap was a limit set on the rebate amount that drug manufacturers were required to pay to Medicaid. The cap was set at 100% of the average manufacturer price (AMP). The American Rescue Plan Act of 2021 removed the AMP cap. The removal of the cap has led manufacturers to reduce list prices on drugs to avoid higher rebate payments — impacting all plans, not just Medicaid plans.
Biosimilars reduce cost & rebates
Biosimilar adoption continues to accelerate, particularly for high-cost reference drugs such as Humira and Stelara. These products are driving:
- Lower ingredient cost.
- Reduced paid claims spend.
- Lower rebate levels compared with originator products.
While net plan costs may improve in these categories, rebate payments also decline.
UPCOMING BIOSIMILAR LAUNCHES
Specialty drugs will drive future cost pressure
Although biosimilars are helping reduce drug costs in some areas, a new wave of specialty therapies is expected to drive significant cost pressure and introduce additional complexity for employers. Meanwhile, PBMs are making retrospective formulary and specialty list changes that can materially impact rebate performance. The result is a more dynamic and less predictable pharmacy environment — where savings in one area are often offset by emerging pressures in another.
The impact of specialty drugs extends beyond the pharmacy benefit; these drugs affect the medical benefit as well.
Self-administered injections, often packaged inside preloaded auto-injector pens or prefilled syringes, contribute to the majority of specialty drug impact on the pharmacy benefit (e.g., Humira, Stelara, and their respective biosimilars), while drugs requiring either intravenous or other highly specialized administration techniques by providers often land in the medical benefit bundled with an administration fee (e.g., many oncology drugs and all gene therapies).
The pharmacy benefit uses its traditional formulary and utilization management tools to help drive better cost outcomes, while there are limited levers available for medical specialty management. We continue to see niche vendors offer options in this space to help manage medical specialty spend.
The impact of specialty drugs extends beyond the pharmacy benefit; these drugs affect the medical benefit as well.
WHAT'S NEXT FOR THE SPECIALTY PIPELINE?
Legislative activity & PBM pressure are increasing
State and federal legislative activity is increasingly influencing pharmacy pricing analytics and how value is measured, forecasted, and reported. Mandates related to PBM transparency, pass-through requirements, spread pricing restrictions, and rebate disclosure are also changing how pricing is structured. At the state level, variation in reporting and pass-through requirements are creating fragmentation and limiting comparability across markets.
A double dose of PBM reform: What employers should know about the new federal law & proposed DOL rules
With the skyrocketing costs of healthcare and increased pharmacy spending, the implementation of new PBM reforms focusing on transparency, access to data, and participant rights was expected. Employers should be prepared for the restructuring of PBM contracts, reporting, and oversight governance.
FTC settlement with Express Scripts signals major shift in PBM pricing
The Federal Trade Commission’s recent settlement with Express Scripts marks one of the most significant regulatory interventions in the PBM space in years. For employers, the agreement may signal a broader shift in the industry toward true net-cost drug pricing models, with potential implications for pharmacy benefit design, budgeting, and future PBM contracting.
States are trying to regulate pharmacy costs. Can they override federal law?
For over 50 years, the Employee Retirement Income Security Act (ERISA) has served as the foundation around which employer benefit plans are built. That foundation, however, has shown cracks in recent years as the cost of healthcare continues to rise and many states try to take regulatory matters into their own hands.
