Take Control of Your Company’s Drug Costs

Posted in: Employee Benefits

Image of a piggy bank with cash, a mini shopping basket, and various pills

For pharma, 2014 was a banner year: Prescription drug spending in the United States increased 13.1 percent to $374 billion, according to a report from IMS Institute for Healthcare Informatics. For employers trying to keep employee benefits costs under control, that’s not welcome news.

A leading contributor to soaring drug spending is all those “Ask Your Doctor” ads on TV, which encourage patients to request advertised drugs that can be wildly expensive. “Direct-to-consumer advertising has proved effective in motivating patients to ask for the branded product, even when generic equivalents exist,” according to a report by the Pew Charitable Trusts. In the Pew study, one-third of respondents were motivated by such marketing to talk to their doctor about the promoted drug and one-fifth to ask specifically for a prescription.

Doctors also appear willing to comply with prescribing the more expensive options, even when the requested drugs may provide no additional health benefit and could even carry health risks.

The good news for business owners: By putting some basic controls in place and requiring medical justification for more expensive medication, you can begin to keep down drug costs for your company. Consider these important strategies:

Tap into the Power of Pharmacy Benefit Manager (PBM)

A Pharmacy Benefit Managers (PBM) is a third-party administrator of prescription drug programs that partners with your insurance carrier (or is sometimes a subsidiary of the company). The PBM is primarily responsible for negotiating discounts and rebates with drug manufacturers, contracting with pharmacies, developing and maintaining the formulary, and processing and paying prescription drug claims. Collaborating with a PBM can help control your company’s prescription drug costs and ensure that less expensive drug options are used whenever possible and safe for your employees.

Increasingly, many PBMs are also offering additional services aimed at saving companies money. “They are helping to manage spending on expensive specialty drugs, [that require special handling, administration or monitoring to treat complex illnesses, such as multiple sclerosis or hepatitis C] … with the use of diagnostics and comparative effectiveness,” the Wall Street Journal reports.

“We save about 35 percent over what businesses would pay if we weren’t in the picture, and they were doing all of this themselves,” says Mark Merritt, president of the Pharmaceutical Care Management Association, which represents CVS Caremark and Express Scripts, the nation’s two leading PBMs. “It’s billions if not trillions of dollars.”

Get in Step with a Strategically Designed Health Plan

When designing your health benefits plan, consider the following options. Any of these can be implemented as a stand-alone program or combined to control drug costs:

Multi-Tier Copayment Program: Past drug programs were based on 2-tier (generic and brand) or 3-tier (generic, preferred brand, and non-preferred brand) copayment arrangements. Current 3-tier programs are often structured differently – Tier 1 preferred (mostly generics), Tier 2 preferred (mostly brand name drugs with some generics), and Tier 3 non-preferred drugs (both generic and brand). Newer arrangements are adding an additional tier with higher cost sharing for injectable drugs, preferred specialty and biosimilar (i.e. generic specialty) medications, and non-preferred specialty medications.

A typical co-pay structure for a 30-day supply might be:

  • Generic copayment ($10);
  • 2nd-tier preferred brand ($25-30);
  • 3rd tier non-preferred ($50);
  • 4th tier injectable/specialty drugs (50% up to $150)

Mandatory Generics: Under this arrangement the health plan will cover the cost for the generic equivalent. If a brand name drug is preferred by the member, the member would pay any cost difference plus the higher copayment. There are variations of this program where exceptions are made based on physician prescribing or an appeals process that documents that the use of the generic caused an adverse reaction in the patient.

Prior Authorization: Often applied to specific classifications of drugs, – such as growth hormones that are used for an extended period of time as opposed to a short-term drug to cure an illness – this program requires approval by the PBM prior to the filling of any prescription for a member. The authorization is conducted between the PBM and the member’s physician, and may result in a short delay in filling the prescription (if approved).

A Step Therapy Program: This is a type of prior authorization program that begins by using the most cost-effective drug therapy for a given medical condition and moves on to more expensive therapies only if medically necessary and with the prior authorization of the PBM.

PBMs establish these “steps” in advance and provide the process to the pharmacist, who will act accordingly. The advantage of the Step Therapy program both for your company and your employees is that if an employee opts for a more expensive drug option that is not authorized, it is still available to them, but they will have to pay the full price of the drug, which helps the organization’s bottom line.

Negotiations with PBM: For larger groups, it may be feasible to negotiate higher discounts off the average wholesale price of prescription drugs, and higher rebates based on drug utilization.

Educate Your Employees

As you are putting your health plan in place, be sure to explain the program structure to all of your employees, and let them know exactly how the prescription plan works. This ensures that they understand the value of your prescription drug program and can maximize its benefits.

Clearly written documentation is crucial here, and should be shared with employees (both in print and electronically) well in advance of any switch to a new plan.

Also consider holding periodic information sessions, where health plan representatives can be on site to explain the plan and answer employee questions. If the new program requires changes for certain employees who are already on medication, use direct, personalized communications to inform them about the changes and provide resources to answer their questions and concerns.

Of course, the best way to control prescription drug costs is to keep your employees healthy and have them avoid chronic health issues — such as diabetes and heart disease — that require expensive (and ongoing) prescription drugs for management.

Encourage your employees to adopt a healthier lifestyle. Institute an incentivized employee wellness program that emphasizes stress management, good diet, and exercise. Beyond other benefits of wellness programs, including increased employee retention, you’ll find that employees who avoid — or better manage — chronic diseases will be more productive and less of a drain on your benefits plan when it comes to prescription drug costs.

To learn more about controlling drug costs in your health plan, please feel free to contact me at epaulsen@psafinancial.com.