healthcare cost
Employee Benefits

Is There a Prescription to Control Pharmacy Cost Aches?

Terri Dill
Terri Dill
Employee Benefits

Are you feeling the effects of high pharmacy costs? If your answer is yes, you’re certainly not alone! Employers are grappling with how to control pharmacy spend as it continues to grow at record pace. And sadly, there’s no end in sight. With the introduction of new medications into the market, as well as manufacturer price increases, it’s most certainly taking a toll. Get this…by 2020, specialty pharmacy products are expected to account for more than half of overall pharmacy spend. On top of that, more than half the new products in the Food and Drug Administration (FDA) pipeline are deemed specialty products. Yikes. Now, let’s put a price to that. The annual price tag is reaching $375,000-$475,000 to treat the less than 1 percent of the population. You may need to read that again…as it’s shocking!

So what can employers do to control their cost, remain informed about new products and formulary placement, and budget for the unexpected expense related to pharmacy? It’s a good question, and I have some advice.

For the most part, employers have relied upon their brokers to bring the carrier, third-party administrator (TPA), and Pharmacy Benefit Manager (PBM) partners together to deliver a solution to manage their pharmacy spend. This may have worked in the past, but, unfortunately, it’s not sustainable for the future. How do you know if your contract is competitive, what clinical programs are in place, and if there are any outcomes-based, clinical initiatives to access? These are just a few questions you should be asking the companies you’re paying to manage your plan. If you’re unsure about these elements of your pharmacy program, it’s critical you pose the questions.

Each entity has its own financial gain to oversee the ownership of your pharmacy agreement. First, as an employer, are you even aware of who OWNS the pharmacy service agreement? Is it managed by the health plan carrier, the TPA, or is it a direct contract with a stand-alone PBM? If the carrier, TPA, or PBM owns the contract, ask yourself, are they managing your costs to meet the needs of your organization or to maximize profit for their own? Do you have the right partner and right agreement in place? What’s the employer advantage if the employer doesn’t own the pharmacy contract? Typically, the carrier or TPA offers an administrative, per member per month (PEPM) credit, or another type of financial incentive to compensate employers for allowing them to control the pharmacy program.

When a carrier or PBM owns the pharmacy service agreement, they hold the power in managing this entire pharmacy claims process from network discounts to the negotiation of rebates. If the employer group owns the contract direct with the PBM, they’re limited in many ways as the pharmacy agreement is opaque, confusing, and very difficult to understand how the money flows through the program.

I would submit that discounts and rebates are an important, but less critical component of controlling costs. Monitoring and managing formulary placement can have a much larger role in flattening the pharmacy cost trajectory by proactively controlling the formulary tiers and the incentives for employees to use lower cost, better clinical outcome prescriptions.

Currently, the PBM facilitates an environment where manufacturers are competing for new product placement. They’re willing to pay rebate money to the PBM for superior placement within the formulary tiers. The PBM profits from these dollars, and your pharmacy plan often bears the burden of a much higher priced drug being placed in a preferred formulary position, with no credence given to the efficacy of the medication itself. In plain English, they’re buying their way into your plan with no data to support better clinical outcomes for your people. This is the problem with the structures of most PBM relationships today. Financial gain and NOT clinical effectiveness drives formulary placement. As an employer, this should be very troubling to you.

With the growth and acquisitions in the PBM space, more and more organizations are forming to slide into areas where there are gaps or oversight in pharmacy care. PBMs were designed to adjudicate a pharmacy claim not to create clinical programs to ensure the right patient, right drug, right dose, and right route of administration. Funds have been dedicated to the development of such programs, but employers have yet to see these program deliverables on behalf of their employees.

While I’m discussing financial gain, I want to point out the recent phenomenon of specialty pharmacy pop-up businesses clamoring for their slice of the pie. These small, unknown specialty pharmacies are gaining the sole dispensing rights to these new orphan drugs released to the market. By adding another layer of “middle men” with new drugs comes more complexity and higher prices for employers. By the specialty pharmacy controlling access to the product, it limits a carrier’s, TPA’s, or PBM’s ability to negotiate a competitive network discount price. With sole access to new products on the market, specialty pharmacies are investing money in technology to deliver product-specific disease management programs at the drug level. Why? Because manufacturers will pay for performance on how quickly medication is in the hands of the patient. Specialty pharmacies can provide the detail around clinical deliverables and overall adherence to product.

What seems like a black hole in benefits really does not have to be.

At Holmes Murphy, we’re positioned to bring the right partners to the table to help you understand your current contract, identify ways to reduce cost, and ensure it’s the right fit for your organization. As a partner to our clients, we’ve identified areas where we can move the needle to address positive change for the employer as well as provide solutions to their members. We focus on areas, including:

  • High-cost infusion products administered under the medical benefit
  • New to therapy treatment options
  • Manufacturer co-pay assistance programs
  • Definitions
  • Audit language
  • Claim inclusion in performance metrics
  • Exclusivity on mail order and specialty drugs

The whole topic can become very complex and confusing. We can provide clarity and recommend solutions to help you understand what you have now and where you can be in the future. Stop waiting and start asking…simply call or email me!

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