Prescription Drug

Rx Risk Insured Products: A Primer on Challenges & Opportunities Facing Today’s Broker
by Gregory Rucinski

For today’s employer, providing a pharmacy benefit is becoming more complex each year.  When you really think about it, a drug benefit may be the most important employee benefit. After all, who doesn’t use prescription medications at one time or another?

Let’s take a closer look at the landscape and the dilemma facing today’s brokers. First, the prescription benefit has become a universal benefit. Rarely do we see a medical benefit without a drug card. Second, the pharmacy benefit is the most frequently used of all healthcare benefits.  According to IMS Health, the average employee will use their drug card eight times a year, which brings us to a third underlying fact: due to the frequent use of the pharmacy benefit, members will have an immediate and unfavorable reaction to any change in drug coverage or employee co-payment. People don’t like change, especially when it means they will have to pay more for a product or service.

Recently, one of our clients decided to self-fund their prescription drug program in an attempt to lower costs. The carrier had moderate cost control and utilization management techniques in place. The client was hoping for better definition and control over present and future costs. For the most part, I agree with this strategy and will discuss it later in this article.

Despite the company’s best efforts to communicate benefit changes, member dissatisfaction was so severe in the first 90 days of the program that the employer was forced to go back to the old program. The new program had a tight drug formulary, which meant higher-than-expected co-payments for almost 15% of the covered employees. This fiasco resulted in severe ramifications on the employer/consultant relationship.

This real-life situation illustrates the dilemma faced by everyone involved in delivering prescription drug benefits. We have only experienced a single-digit trend in cost escalation over the past two years, but we can’t afford to be complacent. The number of blockbuster brands that have gone generic, such as Zocor, was a major contributing factor to cost containment in 2006 and 2007.  After 2008, fewer brands are going generic.

It is also important to note that trend figures quoted in the industry are typically limited to traditional coverage. They do not include the cost of new high tech and biological specialty drugs.  These extremely expensive, but valuable drugs ($1,500 per month on average) account for 20% of employer drug spending. Costs will increase more than 20% each year for the foreseeable future, according to the Pharmacy Benefit Management Institute. 

Specialty drugs used to be paid under J Codes in the medical benefit. This is no longer the case. These drugs are being taken out of the medical benefit and are being put under the pharmacy benefit.  Ask any pharmacy benefit manager (PBM) representative about their ability to deliver this benefit and ask how much specialty drugs contribute to their company revenue.

Finding a Solution to the Broker’s Dilemma

The increasing cost of pharmacy benefits may lead to a cost containment strategy that could disenfranchise employees. Traditionally, there were two solutions. First, look for a vendor with a lower cost or premium. Second, when that fails to materialize, increase the employees’ share of the premium, co-payment, or both. We are even seeing emerging insured programs with no prescription coverage. In California, there is a growing acceptance of limited benefit programs with high deductibles and stringent coverage rules. California is typically a first adopter for healthcare. But looking at programs that have become popular in other areas of the country may help define opportunities here at home.

Our first job, as employer advocates, is to gather information to formulate a plan. It all starts with obtaining and understanding carrier claim reports. Historically, we have been at the mercy of canned reports with little usable information. The good news is that most carriers are responding to consultant and employer demands for better information.  When we get better information, we can understand how trends and utilization contribute to premium increases or reduced coverage and we can execute a plan with greater cost control.

An easy first step is to request certain information from the carrier before renewal. Once a carrier has a renewal commitment, responses to requests for information are typically slow and information is vague. Claim reports should segregate Rx from medical experience and offer a breakdown of gross versus net costs.  Also, ask carriers for the impact of retail as opposed to mail programs and average claim costs. While you have their attention, why not ask them to break out the average generic penetration and cost?  In addition, it’s important to know how and where specialty medications are being dispensed.  Finally, it is useful to know how rebates affect overall cost. Armed with this basic financial information, you can compare average costs to published national benchmarks and give clients a reasonable assessment. By requesting specific information from the carrier, you will demonstrate that you understand how these factors affect costs and how to manage them.

Time for Action

A broker needs to assess the client’s needs as well as their ability to understand and manage a proposed solution. Your clients need to be able to manage pharmacy costs and still provide a benefit. I never met a client who did not want to lower costs and I have met very few clients who wanted lower cost without providing benefits.

How can you make it happen? The first step is to require that all quotes, from this point forward, separate pharmacy from medical.  Pharmacy costs, especially with specialty included, should represent 20% of the overall medical cost.

In theory, you could find an insured benefit or a re-insured, self-funded pharmacy benefit with a very tight formulary. You could also locate generic-only coverage that would give a real benefit with a much lower cost, which the present carrier is not willing to administer.

That last statement is a key component of this strategy.  Most carriers are likely to have a strategy for pharmacy management that may not be in your clients’ best interest. I call this the “my way or highway” healthplan. There are a few of these kinds of plans in California. Alternate proposals with defined costs and appropriate disruption analysis will be forthcoming if you do your homework and you have the reports to send to an alternate carrier or even a pharmacy benefit manager. Armed with the potential vendor ideas, everyone can make a quantifiable decision. Remember that client I mentioned earlier?  The final decision on a plan should take into account clear communication to employees before being executed. The bottom line is that achieving client retention and product consistency is all about saving money on the PBM program, making the client’s employees happy, and eliminating overhead costs.

Today’s broker needs to understand the options with carriers and PBMs.  You need to talk to your clients continually and understand their desires and concerns and be willing to work with a consultant or partner to help you navigate these troubled waters. Yes, there’s plenty of leg work to be done. But the results are well worth it.
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Greg Rucinski is founder and president of Milwaukee-based Tricast Inc., an underwriting and healthcare data based risk-consulting firm.  Before founding Tricast in 1997, Greg founded and managed a PBM firm for a number of years. Before that, he was a managing partner in a pharmacy chain.  Greg holds a degree from the University of Wisconsin School of Pharmacy. He can be reached at gregrx@tricast.com or by calling 414-302-9733. For more information, please visit www.tricast.com.