BY RICK SUTHERLAND
The pharmacy benefit management (PBM) industry began in the 1970s, with PBMs adjudicating prescription drug claims manually by paper. It’s also when commercial publishing of average wholesale price (AWP) drug pricing data became commonplace. In those early days, healthcare spending averaged around $350 per capita in the U.S. (according to www.statista.com). Even then, it was common for a doctor to prescribe a medication, indifferent to its price, and have it paid for by consumers or third-party payors that had little influence over the drug chosen or the price paid.
Forty years later, large molecule biologic drugs were a staple in the marketplace, and U.S. health care spending jumped to about $8,400 per capita. A doctor could write a prescription for a new medication that could cost an employer-sponsored pharmacy plan $5,000 a year, which was a considerable amount when you multiply it by the number of employees. Fast forward to now: per capita health care expenditure hovers over $12,000. With the stroke of a pen or tap of a button, a doctor can now write a script that could impact a plan by a million dollars a year.
Undoubtedly, there is a very real problem of prescription drug affordability for both plan sponsors and their members that must be addressed. Understanding the various factors driving this market shift is important in order to be able to identify the pharmacy pitfalls negatively impacting your self-funded employer clients and their members — and how you can overcome those obstacles to deliver a more affordable pharmacy benefit year over year with a competitive contract, expert data-driven clinical oversight, and an improved member service experience.
How we got here
The prescription benefits landscape has changed a lot over the last 20 years. Today, the three largest pharmacy benefits management (PBM) companies — CVS/Caremark, Express Scripts and Optum — predominantly manage prescription drug benefits for roughly 75% of the U.S.population. Those large entities serve diverse populations of Medicare, Medicaid and self-funded employers. Because of the scale required to achieve a competitive deal with these large vertically integrated carriers, it can be quite challenging for a small employer to navigate the pharmacy market and secure the best value out of the PBM.
Did you realize that what used to be the 80/20 rule two decades ago, is now a 98/2 rule? In other words, where roughly 80% of members accounted for 20% of Rx costs, now roughly 2% of members account for the majority of costs incurred by the pharmacy benefits plan. According to rxbenefits.com, this shift is primarily being driven by the rise of specialty drugs. In today’s market, it’s not uncommon for a brand drug to cost $400 and a specialty medication to cost $5,000.
It no longer makes sense to take a “wait and see” approach to solve the pharmacy benefits affordability issues facing your clients. Specifically, the specialty drug shift is a problem that you and your clients can’t afford to ignore. Now more than ever, employers should be paying attention to specialty drugs and taking action to ensure prescription drug utilization isn’t having a detrimental impact on their pharmacy plan spend. The first step is recognizing the hidden — but avoidable — costs deceiving most pharmacy benefit plan sponsors today.
Misconceptions and hidden costs
The challenge for HR managers has always been balancing competing directives. Their CEO or CFO directs them to lower the cost of the benefits, and they also want to do the right thing by their employees. However, there continues to be a false perception among HR leaders that lowering pharmacy benefits costs means lowering coverage, and in effect reduces the benefit and creates member disruption. They think they have to stop covering medications or increase the member cost-share. Actually, this is what the large health insurance carriers and integrated pharmacy benefit managers (PBMs) want them to think, and it’s really a false perception.
The reality is that there is a lot of waste inside of the pharmacy system — and the large carriers and PBMs benefit from keeping it that way. It’s a costly cycle for HR leaders who unknowingly fall into the trap without realizing that the pitfalls they continue to experience can be avoided, that it’s possible to gain visibility into their prescription drug spending and take steps to address them proactively without jeopardizing member satisfaction.
Self-funded employers need to feel certain their pharmacy benefits provider can deliver on new, innovative strategies to match the new challenges they face managing costly prescription drugs. When HR leaders operate under the false premise that a reduction in cost is a reduction
in benefit, that’s an immediate barrier to moving forward. There are several avoidable costs that could be impacting the pharmacy plan and worth exploring to ensure the plan is optimized in all areas:
1. Unscrupulous Drug Pricing Practices
We should all take issue with drug manufacturers using shortcut methods, like evergreening and parity pricing, to drive higher margins and capture more market share. These legal practices introduce costly, wasteful low clinical value drugs to the market, catching payers unaware. This according to rxbenefits.com.
Impact: If not managed appropriately, problematic drug pricing practices present unlimited financial threat to employer-sponsored Rx plans.
2. Bundled Pharmacy Arrangements (Remaining Carved-In)
Bundled, or carved-in pharmacy arrangements, put self-funded plans at a cost disadvantage. These plans pay more because of one-size-fits-all benefit plan designs, hidden higher rates, lower rebates, and misaligned clinical decision-making. For non-Fortune 100 companies, carving out pharmacy is a critical component of managing the drug benefit to lowest net cost, by having visibility into drugs that drive plan cost, plan spend before and after rebates, and clinical decisions made on the plan’s behalf.
Impact: Staying carved-in with the medical carrier leaves significant dollars on the table, with plans averaging 28% first-year savings in a first-time carved-out pharmacy contract.
4. Inadequate Clinical Oversight
To ensure employers are not overspending on inappropriate prescription drugs, they need data-driven clinical strategies that address their plan’s specific risk areas and monitor for appropriate Rx utilization and won’t jeopardize member access to needed medication. Impact: Not having a comprehensive, targeted clinical solution in place costs plans up to 10% every year.
5. Poor Member Experience
In today’s competitive job market, it’s important that members have access to a customer service team staffed with compassionate, knowledgeable people who treat them with respect and deliver a personalized service experience to resolve their benefits questions on the first call. Doing right by the employees means improving benefits value, not settling for subpar service.
Impact: Poor service has unacceptable human implications and results in lower employee satisfaction, higher turnover, and a greater volume of complaints to HR.
Pharmacy benefits strategies for modern times
Employers who provide their employees with affordable access to medications want to help them improve or maintain their health while shielding them from risk. It’s hard to debate the cost of care versus the value of life, and none of us can ultimately make the decision for plan sponsors. As trusted advisors to HR leaders, we never want the organization to be in a situation where the cost of the benefit has exceeded the value. What we can do is advise when these prescriptions are medically necessary and appropriate with the goal of reducing total cost of care.
Eliminating waste and increasing value necessitates that you and your clients both understand the financial and clinical risks, as well as the member impact, involved in any decision about their pharmacy benefits plan before making it. But with all the complexity surrounding prescription drugs, it can be challenging to know where to start.
They need help in understanding what levers exist that they could pull, with the right partner, to balance the benefits value equation. A good place to start is taking steps to identify and address the hidden costs slowly draining their pharmacy benefits budget.
We’ve already seen employers move the needle on these areas in order to find more dollars to save jobs during the pandemic. Because they chose to act instead of wait, they flipped their unsustainable spending trajectory and are positioned to maintain a more affordable pharmacy benefit year over year. They secured a more competitive pharmacy contract independent of the Big Pharma machine and eliminated wasteful spending on unnecessary medications to preserve their financial resources to cover those that matter — without sacrificing member satisfaction.
Imagine if you could deliver tens to hundreds of thousands of dollars, or in some cases millions of dollars, in pharmacy savings to your clients each year while maintaining the benefit value. What impact would that have for them and their employees in the next year, 3 years or even 5 years, and beyond?
RICK SUTHERLAND works in business development for RxBenefits, the nation’s first Pharmacy Benefits Optimizer. He supports brokers in the California and Hawaii regions, guiding them through the pharmacy benefit contracting process to help them evaluate their clients’ prescription drug plans for optimal savings, clinical management, and service.
Rick is also the current Board President for the Employee Benefit Planning Association of Southern California (EBPA). He can be reached at email@example.com.