Anyone who buys prescription medications at a corner pharmacy or makes health-care decisions at a company is well aware of the costs involved.
The brunt of what have become ever-rising costs is being felt by employer-provided health insurance companies and their members, at the expense of others who pay less. There are solutions that would serve to level the playing field, but getting there is fraught with complexity and greed.
Between 1985 and 2024, the cost of pharmaceuticals in the U.S. has increased three times more than the rate of inflation, according to the Federal Reserve Bank of St. Louis.
But all pharmaceutical costs, both here and globally, aren’t created equal.
Consumers covered by Medicare and Medicaid government-funded plans pay less than others for similar medications. Cash customers who buy from Amazon, Mark Cuban’s Cost Plus Drug Co. outlet, and President Donald Trump’s proposed TrumpRx.gov also pay less — or will soon have access to less-costly prescriptions. International customers also pay less, because governments can negotiate prices with drugmakers.
That leaves the pharmaceutical industry to make up the difference by charging higher rates to domestic employer-funded health insurance plans.
This is where the lack of price regulation and competition in the U.S., in which drug manufacturers frequently charge exorbitant prices when creating new specialty and biologic drugs, ramps up the overall average costs to employer-funded plans.
Another reason for the exploding cost of medicine in employer-funded health insurance is greed in the supply chain, according to Elaine Coffman, executive vice president of Lockton Cos., a global insurance company with an office in Birmingham as well as locations across Michigan.
“Within our system, there are a lot of hands in the pot that make a lot of money in the pharmacy sector,” says Coffman, who has more than 35 years of experience in the field. “There are publicly traded companies, health systems, clinics, private equity money, and pharmacy benefit managers (PBMs) that add cost to the whole supply chain.”
In a typical supply chain, manufacturers set a list price for a product. The product is shipped to a retailer, which then sets the price for the customer. The customer pays the retailer, who then pays the manufacturer.
The pharmaceutical industry follows a similar process, with a twist. Drug manufacturers set a list price for a medication, which is distributed by wholesalers to pharmacies. Customers pay their copay to the pharmacy, and the pharmacy bills the customer’s insurance company for the remaining cost of the medication.
PBMs act as intermediaries between the manufacturers and the insurance companies, and at the same time negotiate rebates from the drug manufacturers. The practice lowers the cost that insurance companies must pay for medications.
The rebates go to employers in employee-funded health plans and insurance companies when a patient is covered by a standard health insurance company.
“Rebates used to be 5 percent. Now they can be as high as 35 percent,” Coffman says. “It’s become another aspect of the system that isn’t in alignment with a customer’s best interests. It didn’t happen overnight, but it’s where we are now, and insurance companies are addicted to it.”
The rebates also play a role in the placement of medications on lists of preferred drugs, called formulary lists, which are organized into tiers. Moving a medication up reduces the copay patients are responsible for, thereby driving higher sales.
The higher the rebate paid by the drug company, the higher up on the formulary the medication is moved and the more likely it is that patients will fill their prescriptions for the medication.
However, a major issue with the rebate system is that it’s not transparent.
“It’s one of the least transparent parts of the medical industry,” Coffman says. “Even disclosure by itself would be a meaningful improvement on the employer side. Washington, however, hasn’t been able to do anything about that because of how strong the pharmaceutical lobby is.”
A result of the current system is that the cost of infusions — and the price of specialty treatments, in particular — have become astronomical for employer-funded insurance plans, as drug manufacturers use the market to recoup their development costs and boost profits.
Coffman uses the example of Stelara for plaque psoriasis, which can cost $60,000 to $140,000 per year. Medications for conditions such as cancer, multiple sclerosis, rheumatoid arthritis, and Crohn’s disease also can carry extremely high price tags.
Coffman says the new class of drugs for diabetes and weight loss called GLP-1s — Ozempic, Wegovy, and Zepbound — are running $1,500 per month on employer plans.
“A huge percentage of drugs cost less than $10,” Coffman says. “A majority of drugs cost less than $5 for a month prescription. That’s why Cost Plus and Meijer can have $3 or free drugs that waive the co-pay, because they’re a loss leader to bring you in.
“It’s the higher-cost generic and brand-name drugs, the specialty drugs. And within the medical plan, there are infusion drugs that treat things like cancer; Keytruda would be an example. Those are the higher-end drugs that are driving up the costs.”
According to the American Hospital Association, unchecked drug price increases aren’t sustainable, and are a serious economic threat to patients and communities.
“They not only threaten patient access to drug therapies, but challenge providers’ abilities to provide the highest quality of care,” the AHA said in a statement.
Continued price hikes by manufacturers are forcing hospitals to make “significant” decisions like downsizing staff, delaying capital investments, and employing alternative therapies to cope with the high cost of drugs, the association says.
Hospitals, in addition to employer-funded health plans, bear a heavy financial burden when the cost of drugs increases. They aren’t only major purchasers of drugs, but patients often end up in the hospital when they can’t afford to take their medications as prescribed.
Finding solutions to the issue of high pharmaceutical costs is seemingly as difficult as NASA’s efforts to land a manned crew on Mars.
The AHA is a founding member of the Campaign for Sustainable Rx Pricing — a coalition of doctors, hospitals, pharmacists, employers, health plans, seniors, patients, and consumers coming together to find common ground and solutions. The coalition has not yet been published any of its findings.
Uninsured people and those covered by employee-funded health plans who are willing to go outside the system to access less expensive medicine have more options than those who are tied to their health insurance.
“There’s the cash buyer that’s paying cash at the pharmacy or through GoodRx, Amazon, Mark Cuban’s Cost Plus, or the platform Trump has announced,” Coffman says. “The prices tend to be more affordable for those cash buyers than other buyers in the system.”
In 2022, Cuban and Alexander Oshmyansky founded Mark Cuban Cost Plus Drugs Co., which offers prescription medications at a fraction of the cost of traditional medications. It does so by cutting out PBMs entirely.
It negotiates directly with drug manufacturers to purchase generic medications at low list prices. The cost is then marked up by 15 percent to cover business operations, with an additional $5 fee for pharmacy labor and a $5 shipping fee.
“Mark Cuban found out that he could buy a high-cost therapy drug for a friend direct from the manufacturer for a tenth of the cost,” Coffman says. “The top 10 PBMs will not use his service because of the margin loss, but some do.”
Cost Plus Drugs currently only accepts a limited number of health insurance plans. Most patients are responsible for paying the full Cost Plus Drugs price for their medication, and this expense will not count toward any insurance deductibles or out-of-pocket maximums.
For example, the list price for a one-month supply of imatinib, a chemotherapy drug used to treat leukemia and other types of cancer, is approximately $2,500 at various pharmacies. At Cost Plus Drugs, it’s $13.40.
The company hopes to in the future.
In addition to lowering the prices of medications, Cost Plus Drugs also is jumping into manufacturing. In March 2024, it opened a 22,000-square-foot manufacturing plant in Dallas.
The facility is producing epinephrine, the medication used to treat severe allergic reactions, and norepinephrine, used to treat severe low blood pressure and certain types of heart failure and shock, and the injectors that deliver them. Both of these medications have had shortages in the past decade.
While Cost Plus Drugs currently only offers generic medications, it says it hopes to expand to include brand-name drugs in the future. With no marketing budget, Cost Plus Drugs relies entirely on word-of-mouth and media coverage to reach new customers.
President Trump’s response to high drug prices includes negotiating with manufacturers like Pfizer and AstraZeneca to bring American drug costs in line with the lowest prices paid by other developed nations (known as the most-favored-nation price, or MFN).
The agreement with AstraZeneca requires the company to repatriate increased foreign revenue on existing products that AstraZeneca realizes as a result of Trump’s America First U.S. trade policies for the benefit of American patients. It requires AstraZeneca to offer medicines at a deep discount off the list price when selling directly to American patients.
“The agreement ensures foreign nations can no longer use price controls to free-ride on American innovation by guaranteeing MFN prices on all new innovative medicines AstraZeneca brings to market,” according to a White House statement.
The affected products include Bevespi Aerosphere, an inhaler used to treat chronic obstructive pulmonary disease, and Airspura, an inhaler used to treat asthma symptoms and attacks. Both products will be available at more than 95 percent off the list price under Trump’s plan.
Another national development regarding prescriptions is the September 2025 U.S. Department of Health and Human Services announcement that, as of Oct. 1, 2025, millions of Americans for the first time are now able to compare drug prices, view out-of-pocket costs, and access prior authorization requirements.
HHS’ final rule reportedly ensures health care providers using certified health IT systems are able to submit prior authorizations electronically, select drugs consistent with a patient’s insurance coverage, and exchange electronic prescription information with pharmacies and insurance plans.
But it’s the employers who are bearing most of the cost burden that’s getting passed along to consumers.
“We are helping employers with high-deductible health plans to get access to these lower-cost options,” Coffman says. “Many manufacturers working with alternative outlets that cater to cash buyers require buyers to not be covered by employer health plans.”
Close to 50 percent of the country is covered by commercial insurance. That percentage is paying the way for the rest of the system to exist, Coffman says.
“Even the Biden plan for $30 for diabetes drugs didn’t touch the employer plans,” she says. “That was only for government plans.”
In an effort to help employers, Coffman’s Lockton Cos. has organized Simplify Medical & Rx, which is based locally in Birmingham. It’s not an insurance carrier or even a company, but a medical and pharmacy plan.
Through collaboration between Lockton Cos., Allied Benefit Systems in Chicago, and several other vendors, a comprehensive plan has been designed that capitalizes on a variety of savings opportunities to bring low-cost, quality health care to the marketplace.
Simplify Medical & Rx is for self-funded employers that use a national preferred provider organization network to manage the big drug spend.
“We’re in the process of shifting thinking about how we buy prescriptions — for employers, from this discount/rebate-driven system, to a lowest-net-cost system — but it’s difficult because of how entrenched we are and how much money is being made on the current system,” Coffman says.
“We’re basically carving out infusion drugs and specialty drugs from the medical plan, which are only 6 percent to 20 percent of all claims,” she says. “We have a vendor in the mix whose sole purpose is to get the member on the right medication at the right price.”
Coffman says Simplify Medical & Rx is seeing a 50-percent reduction in spending for infusion and specialty drugs, and about a 20-percent reduction in regular retail and mail drugs.
“We’re doing it by creating transparency and having partners that are focused on lowest net cost instead of discounts and rebates. It’s hard to do.”
