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Transparency and pricing models prove critical to managing pharmacy spend

Best practices for successful pharmacy benefit management.

For those taking them, specialty medications are essential to managing complex conditions like cancer, multiple sclerosis and rheumatoid arthritis. For employers and healthcare plan sponsors, discussions continue regarding the growing costs of these medications: how to manage utilization, how to regulate the industry and how to pay for it.

As they have been in the past, specialty medications will continue to be a significant driver of medical plan costs. The introduction of bio-equivalents to these costly medications provides a glimmer of hope, but the savings with these “generics” of specialty medications will be limited.

Successful pharmacy benefit management requires heavy lifting in order to see savings, especially in the realm of utilization. There are controls a plan must have in place to ensure that specialty medications are being used for the approved diagnosis and that first-line treatments have been exhausted.


How can plan sponsors control pharmacy spend?

The answer is twofold. A plan sponsor must: A.) Integrate the pharmacy benefit into the medical benefit, and B.) Actively manage the pharmacy benefit design for both specialty and traditional medications.

Traditionally, pharmacy benefit design has been managed separately from the medical benefit design, even in cases where both benefits are managed by the same vendor. Forward-thinking employers realize they are better positioned when a flat dollar copay structure is replaced by an integrated plan design that ensures consistent member responsibility for both medical procedures and medications.

Under this structure, the coinsurance for specialty medications should mirror the medical benefit, while the deductible and out-of-pocket maximum should be for pharmacy and medical combined. Initial concerns that members would stop taking medications due to high out-of-pocket responsibilities are addressed by patient assistance programs through the manufacturer.

Setting the plan design with a deductible and coinsurance would decrease drug spend for the plan sponsor as well as keeping the member protected from high costs through manufacturer copay assistance dollars that are available.


Who’s guarding the henhouse?

In addition to setting the right plan design, other factors must be considered to control specialty drug costs. Recently, some PBMs (Pharmacy Benefit Managers) began offering outcomes-based pricing for specialty medications. Some of these programs add value in that they keep members adherent on their specialty medication and usually offer guarantees if a member stops taking the drug. However, the agreements between the PBM and manufacturer dictate the prior authorization criteria used in conjunction with these programs. This is a fundamental problem when the manufacturer who makes the drug and the PBM-owned pharmacy who dispenses the drug makes the decision on which members should take the drug. In order for outcomes-based pricing programs to be effective, an independent third party should be making the prior authorization decisions.

Another means to control specialty drug spend is by renegotiating the contract employers have with their PBM. Many plan sponsors have traditional pricing contracts with a fixed discount off the average wholesale price (AWP), plus a portion of the rebates that are available. These contracts should be changed to a transparent contract where the fees to the PBM are fixed. Contracts with a traditional AWP discount methodology increases the revenue to the PBM when drug costs increase. Plan sponsors stand to benefit more from a pass-through plus admin fee arrangement for the retail pharmacy network and an acquisition plus a fixed fee pricing model for mail order and specialty. In addition, PBMs should pass back all revenue from manufacturers, which includes not only rebates but also administrative fees and price protection guarantees.


Best practices for managing traditional medications

Effective plan management must also maximize savings on traditional medications.

An area of opportunity continues to be which medications are approved and where they are filled, as pricing can vary significantly. Transparent agreements between employers and PBMs allow plan sponsors to tailor their pharmacy network to encourage utilization of warehouse, grocery and discount stores that offer more competitive pricing without sacrificing service or clinical care.

Furthermore, volume discounts make it possible for medications to be filled by a specialty pharmacy and shipped directly to a patient’s home. This can be done through a pharmacy in either the medical or pharmacy network, depending on the negotiated price in place. Mail-order programs can also be cost-effective, but only if the copays and coinsurances are properly balanced between mail and retail and if the auto-refill program is turned off. Many plans still only charge two copays for a three-month supply, but they are losing money for every prescription fill at mail because the greater discounted price at mail order does not make up for the loss in copays. Auto-refill programs should be turned off and members should order the refill only when they are almost out of medications in order to avoid filling a prescription that is never taken by the member.


A focus on utilization

The best opportunity to control the benefit costs for traditional medications, however, is through the use of utilization management programs offered by the PBM. Mandatory generics, Step Therapy and Prior Authorization are still effective means of controlling costs. Plan Sponsors should speak with their PBM regularly about the available programs to ensure that the right member is getting the right drug from the right place.

At Healthgram, we manage the Prior Authorization process for many of our groups. This benefits our clients because decisions are made independent of financial interests and are based on the patient’s complete medical history.

In the past, Plan Sponsors could set the copays and forget about the pharmacy benefit until the next renewal. Today’s ever-changing market requires that health plan administrators be actively engaged in every segment of their healthcare benefit.


For more guidance planning or evaluating your pharmacy benefit management strategy, contact a member of our team.


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