By Simon Leung and Barbara Hawes
Drug manufacturers announced price hikes to more than 800 drugs in January, with an average price increase of 4.5%. Major drug manufacturers said they plan to hike prices 10% or more in 2021.[1] The median annual price increase on pharmaceuticals has been 9% and 10%, respectively, in recent years.[2]
The cost of specialty medications — such as orphan drugs, oncology treatments and drugs for autoimmune conditions — is particularly concerning, as they account for hundreds of billions in annual spending.[3]
The effect of rising drug prices on health care plan costs is undeniable. However, there are ways employers can drive down the cost of their pharmaceutical benefit — and they are dependent on their pharmacy benefit manager (PBM), which administers their drug benefit, manages formularies and negotiates rebates with drug manufacturers.
The four pillars of PBM management
A strong PBM management strategy is built on four pillars: contract management, clinical program optimization, plan design, and alternative funding programs. Here’s how to build upon each:
- Reviewing and updating the PBM contract. Whether the pharmacy benefit is carved-in with health care benefits or carved-out as a stand-alone benefit, PBM contracts need to be periodically reviewed and updated. The process should include market checks comparing pricing for drug types and dispensing channels, fees, allowances, and rebates. A review improves plan pricing, or at least ensures pricing consistent with the current environment.
In addition, employers should evaluate contract provisions covering guaranteed discounts and dispensing fees. Another consideration: the extent to which the PBM leverages limited or restricted retail and specialty pharmacy networks, which influences the dollar amount of discounts for plan sponsors. Also, contract review should include market check provisions (some PBM contracts do not allow or limit market checks) and clearly defined rebate terms.
- Optimizing the clinical program. Clinical management ensures patients receive the right drug at the right time over the right amount of time. Sound utilization management effectively balances cost management with appropriate, safe and cost-effective access to medications. Utilization management strategy is critical for fine-tuning a plan’s formulary over time and can save as much as 30% in transitioning from high-cost branded medications to lower-cost options like generics.[4]
- Optimizing pharmacy benefit design. A well-designed pharmacy benefit should reward desired behaviors among plan members, so plan features should encourage consumerism and incentivize members to use the most cost-effective drug treatment. Optimized co-pay tiers and distribution channels result in effective utilization that cuts costs while improving medication compliance, leading to better clinical outcomes and lower health care costs overall.
- Alternative funding programs. A single regimen of a specialty medication can blow the budget of self-funded healthcare plans. Employers should first look to their PBMs for viable solutions to high-cost specialty drug claims.
Another option for self-funded plans are third-party intermediaries. When using a third-party intermediary, plans exclude coverage of specialty drugs as a class. The third-party intermediary handles the claim, shopping and securing alternative funding through manufacturers’ patient assistance programs, charitable foundations and government bodies. However, not every PBM is open to integrating with third-party intermediaries, making it important to consult with a broker first.
Measurement and performance
As a final proviso, remember that what isn’t measured isn’t managed: A pharmacy benefit strategy must be measured and monitored early and often. At a high level, performance outcomes must be compared to program goals, industry benchmarks and best practices. From tracking rebate yield and payment timing to monitoring utilization data and responding accordingly with a management plan, getting it right is in the details.
HUB International’s team of Employee Benefits consultants, including members of its Pharmacy Practice and compliance organization, are available to help you manage the issues facing today’s benefits programs.
[1]GoodRx.com, “Live Updates: January 2021 Drug Price Increases,” January 19, 2021.
[2]BioSpace, “With Rising Drug Prices a Concern, Some Companies Enact Their Own Control Plans,” January 15, 2021.
[3]Advanced Medical Reviews, “The Rising Costs of Specialty Drugs,” January 15, 2020.
[4]Navitus, “Using UM Strategies to Better Manage Rx Costs and Improve Health,” May 28, 2020.