Trimming Healthcare Costs by Taming Your Rx Spend.

It is impossible to escape headlines about the rising costs of prescription drugs these days. With new specialty drugs hitting the market every day, increasing demand and rising drug inflation, keeping a lid on pharmacy costs can be a challenge. Gone are the days where prescription spend was 5-10% of a healthcare plan cost. Today drug spend averages around 25% and is expected to be over 30% in the next 5 years. 

With such a large percentage of healthcare dollars going toward pharmacy spend, plan sponsors have to take a more proactive approach and use both cost containment strategies as well as Pharmacy Benefit Manager (PBM) review and audits to help keep costs in line.
​

For groups that are fully insured, the pharmacy benefit services are bundled with the medical coverage. The problem with this is the lack of transparency on true Rx spend. Also in this situation there is no ability to understand the underlying reasons and hidden fees that are contributing to the ever increasing costs of prescription drug benefits. As an HR representative if your Rx spend is starting to climb, it might be a good idea to meet with a consult and discuss self funding options and pharmacy carve out options.


Meeting with a broker or a consultant that can show you a variety of different options is the first step. It's important to look around at a few different PBM’s to make sure you will find a PBM that meets the needs of your employee population. With more and more employers looking at moving to self-funding and prescription costs on the rise, HR professionals need to educate themselves on some of the specifics they should be asking their broker or consultant about in regard to pharmacy benefit services. Here are some specific points to ask about: pricing, transparency, specialty pharmacy management, customer service, rebates, reporting, case installation, formulary management, manufacturer coupon/ co-pay assistance, prior authorization procedures, and cost management strategies. 

In addition HR teams should be aware of various cost containment tools that PBM’s are putting in place to reduce medication costs and to promote the most clinically appropriate drug choice. With all the different medication choices out there these days, the PBM should guide the formulary to make sure the best drug is chosen. The PBM should encourage the use of generics over brand name drugs whenever possible and evaluate the various options based on scientific evidence, treatment guidelines, safety and cost. Beyond encouraging the use of generics some of the other cost containment tools are step therapy, prior authorization and quantity limits. 

One of the most effective cost containment tools a PBM will put in place is step-therapy. When step therapy is put in place an individual covered under the prescription plan will first be prescribed a less costly drug before stepping up to a drug that is more costly. For example, a person suffering from allergies should first try an over the counter medication. If that does not provide relief, a Tier 1 medication will be prescribed. If the Tier 1 medication does not work, the PBM will review the patients situation and make sure they met the step-therapy requirements before the plan will pay for a Tier 2 or Tier 3 medication. Step-therapy helps to control costs but also steers patients to drugs that have fewer and have better understood side effects.  

Another tool put in place to control costs is prior authorization. Prior authorization requires the patient to meet clinics criteria and the health plan to approve therapy prior to the drug initiation. Prior authorization is used to maximize patient safety and the chances of the drug's effectiveness. This cost containment solution also reduces the costs for unnecessary or less effective treatments. Prior authorization is usually required for high cost medications with a history of misuse or inappropriate use.  

The last common cost containment strategy HR professions should be aware of is the use of utilization management tools such as quantity limits, refill-too-soon supply limits and pill-splitting.  All of these tools help to make sure that the patient is getting the right amount of drugs rather than an abundance which can be costly and wasteful. With quantity limits the PBM will systematically restrict how much of a drug should be dispensed at a time. These limits are determined by guidelines set by the FDA, drug manufacturer and medical professionals.  Narcotics are a common example of when supply limits are used.  With these types of drug, quantity and day limits may apply. Refill-too-soon supply limits help to make sure individuals are utilizing their drugs appropriately and to reduce stockpiling of mediations. Pill-splitting is the least popular utilization management tool and is not usually a mandatory option offered. 

Cost containment tools are important for HR professions to be aware of so they can safely and financially managing their prescription plans. HR professionals should be mindful of these tools and make sure to ask TPA’s and PBM’s about these solutions when reviewing new or existing prescription benefit plans. 

HR professionals may be familiar with the basics of a prescription drug plan but they may not be aware that their company could be missing out on hundreds of thousands of dollars, sometimes millions of dollars due to PBM's using creative pricing strategies and they are not always meeting the terms of the contract. The PBM world is complex and ever changing.  For this reason, we advise all our clients to regularly review and audit their PBM contract every 18 months to make sure they are not missing out on big savings and to make sure they are getting the appropriate pricing and rebates. The audit process confirms the contract pricing and guarantees the performance of the plan and holds the PBM accountable for their results.  After the audit is performed, the client will need to decide based on the results if the best choice is to work with the current PBM to true up the terms of the contract or begin shopping for a new PBM. 

When reviewing your PBM contracts, the first course of action should be to check the language used in the contract. Make sure your contract already includes or is amended to include a clause that gives the plan sponsor the right to hire an outside, independent auditor to periodically conduct PBM audits.  This way the PBM does not get the right to select an auditor of their choosing which will probably have the interest of the PBM rather than that of the plan sponsor. 


Another item to look for or add to a PBM contract during the review process is performance guarantees. Performance guarantees hold the PBM accountable for their performance during the term of the contract. Guarantees should be written in for all channels of the pharmacy plan such as retail, mail order and specialty. Guarantees are written in to make sure that the PBM is holding up their end on things like pricing, quality and timeliness. A plan sponsor should make sure that performance guarantees are written in for their specific needs and for the areas where they see risk within the PBM contract. Plan sponsors should be continually monitoring their pharmacy contract to make sure their guarantees are being met.

If the plan sponsor wants to move forward with an audit, keep in mind that there are many types of audits that can be performed on your PBM contract. Some of these audits can be costly and time consuming. The best solution is to work with a consultant that is familiar with PBM contract terminology and the various types of audits. A consultant can review your contract to help identify the best audit that will yield the most savings for the plan.