Insurance companies are investing a combined $55 million in initiative to reduce prescription costs

With rising prescription costs absorbing a growing share of its budget, Horizon Blue Cross Blue Shield of New Jersey has joined a national nonprofit collaboration meant to change this trend by manufacturing certain pharmaceuticals itself — for less than is currently spent.

Officials at Horizon, the state’s largest health insurance company, announced Thursday the insurer had teamed up with Blue Cross Blue Shield (BCBS) plans in 17 other states and nonprofit drugmaker Civica Rx to form a new subsidiary that would manufacture certain generic drugs. The insurance companies are investing a combined $55 million in the venture; Horizon declined to say how much it would contribute.

Horizon representatives said the initiative would focus on common high-cost drugs people use at home, not just in the hospital, like insulin and certain heart medications; a specific list has yet to be compiled. The collaboration is expected to save hundreds of millions of dollars annually for people insured through these plans, officials said, while creating new competition in the drug market, which could impact what other manufacturers charge. The first pharmaceuticals could be available by 2020.

“Prescription drug spending is the single biggest driver of the higher health costs facing consumers and businesses, and we cannot and will not simply wait for others to solve this problem,” said Kevin P. Conlin, Horizon’s president and CEO. “Horizon will continue to pursue every available opportunity, including creating new options when needed, and maintain the dialogue with pharmaceutical industry leaders who want to partner with us to help our members get the prescriptions they need to achieve their best health at a price they can afford.”

The key appears to be Civica, which hospital leaders and philanthropic organizations formed in 2018 to address drug costs and pricing spikes; that partnership led it to produce 18 generic drugs frequently used in hospital settings, including morphine and the opioid reversal agent naloxone. While details of any resulting savings were not shared last week, Civica — as a nonprofit focused on medications already developed — does not face the same investor demands and research costs that other drugmakers do.

Spending on drugs continues to grow

While the pharmaceutical industry notes that just one in 10 health care dollars goes to prescriptions — a ratio that has held steady for decades — other stakeholders stress that total spending on drugs continues to grow, and faster than for other health care sectors. The U.S. is expected to spend more than $600 billion on pharmaceuticals this year, according to America’s Health Insurance Plans, a national advocacy group, up from $380 billion in 2014.

In the Garden State, the average price of prescriptions rose 58% between 2012 and 2017 alone, AARP New Jersey found. An analysis of medical claims from New Jersey insurance companies (not including BCBS) showed pharmaceutical spending increased 27% between 2012 and 2016, while health care spending overall grew just 18% over those years, according to the New Jersey Health Care Quality Institute.

Horizon, which insures some 3.2 million New Jersey residents, said it now spends more than 22% of every premium dollar collected on medications, and the annual increase outpaces the rise in their other medical costs. Generics make up 85% of the medications the insurance company covers, officials said, but brand-name drugs still drive most of the cost, making up more than $4 out of every $5 spent on drugs.

Lawmakers in Washington, D.C. and Trenton have outlined numerous proposals to suppress this growth, including legislation by U.S. Rep. Frank Pallone (D-6th) that would peg prices to what other countries pay and allow the government, with its massive buying power, to negotiate directly with drugmakers. Earlier this week, state Sen. Troy Singleton (D-Burlington) introduced measures to allow New Jersey to take advantage of bulk purchasing and set price limits on some drugs.

Already working to reduce drug overuse

Horizon already works with pharmacists and prescribers to identify opportunities to save on prescriptions and reduce drug overuse, which is dangerous as well as costly. In a partnership with technology company Gemini Health, Horizon released software last spring that helps doctors identify lower-cost prescription options for patients. By August, more than 5,000 prescribers had signed up for the program.

“Our members are demanding more from health care, and Horizon is leading with new approaches and solutions that challenge the status quo to improve quality, affordability and the patient experience,” Conlin said.

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