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Managing employer pharmacy spend: An at-a-glance guide

To manage costs, employers can focus on understanding pharmacy contracts and managing specialty drug spending

In the next five years, global spending on medicines is projected to grow 32 percent according to a report released this month by the IMS Institute for Healthcare Informatics. Drug companies are expected to release 225 new drugs. As pharmacy contracts become increasingly complicated, employers face enormous challenges in understanding hidden costs. Ways employers can proactively manage spend:


Plan Your Strategy

To proactively manage costs, employers can focus on two key issues: understanding the pharmacy contract and managing specialty drug spending.


Understand Your Pharmacy Contract

Pharmacy benefit managers—or PBMs—serve as third-party administrators of prescription drug programs. To increase profits, they structure contract language in their favor. A PBM knows that if a client is savvy about one aspect of pricing, higher charges can be hidden in another part of the contract.

“PBMs will give a little bit here to take a little bit there,” says Bryan Klazinga, Healthgram’s vice president of pharmacy benefits. “It’s a shell game, really.” Klazinga has spent more than 20 years negotiating pharmacy contracts. He’s an expert on locating hidden phrases that diminish savings.

He says to pay close attention to these six areas:

  • Definitions: What defines a brand name drug versus a generic drug?
  • Terms: Does “average wholesale price” refer to average discounts or fixed discounts? How many drugs are on the Maximum Allowable Cost list?Are rebates calculated as a percentage or by a fixed guarantee per claim?
  • Guarantees: Are categories of drugs excluded?
  • Audits: Are you prohibited from auditing claims or rebates?
  • Term of contract: Can you terminate the contract without cause?
  • Pricing changes: Can the terms of the contract be changed by the PBM at its discretion?

Manage Specialty Drug Spending

After negotiating fair terms for your pharmacy contract, your next challenge is to keep a check on specialty drug spending. Here are some common sense ways to steer clear of higher costs.

  • Pre-authorization: Verify each treatment plan with the member’s physician.
  • Check FDA approval: Make sure the diagnosis is FDA approved. Do not allow off-label prescribing for specialty medications.
  • Use a specialty pharmacy: Maximize discounts by utilizing an exclusive arrangement with a specialty pharmacy. Be sure to compare prices from the PBM and other medical benefit vendors to ensure you are getting the lowest cost.
  • Limit supply: Sometimes a member is switched to a different medication or stops taking a medication. Be proactive by limiting the drug supply to 30 days or, in certain cases, 14 days.
  • Look for alternatives: Take advantage of step therapy programs if it makes sense to begin a drug therapy with a cheaper drug and progress to a more costly version. Or, see if there is a cheaper alternative to an expensive specialty drug.

The Payoff: Good Coverage at a Fair Price

As drug prices climb in the coming years, pharmacy contracts will become increasingly complicated. If you know where to look for hidden costs, you’ll negotiate good employee benefits at fair terms for your company. In addition, by managing specialty drug spending, you’ll significantly control the costs incurred by high-priced pharmaceuticals.



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