Pharmacy Benefits Uncut

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Everyone’s talking about PBMs right now. It’s been a big couple of weeks with congressional PBM reform and the FTC settlement with Express Scripts Inc (ESI).

While these are important, long-awaited reforms worth celebrating, the reality for most employers is complicated. Although congressional PBM reforms have received a lot of attention and shone a light on the kind of changes needed in the industry, they only apply to Medicare Part D not to employer-sponsored plans. The FTC settlement, on the other hand, may have an effect in the employer-sponsored space but it’ll probably have less of an impact than you think because it’s only applicable to ESI, at least for the time being, and many employers may elect to stick with their current PBMs that operate on the traditional model. And it's a pretty sure bet ESI and other PBMs, that in the future may be subject to conditions outlined in the FTC settlement, will devise alternate financial schemes (e.g. increased administrative fees) to offset their lost revenues.

So the onus remains on employers to manage their pharmacy spend. Today let’s take a look at some of the things you as an employer might be doing inadvertently to keep your drug prices heading north and what you can actually do to meaningfully reverse direction.

1. Neglecting Your Pharmacy Benefits Plan

Pharmacy benefits is one of the most complex areas of employer-sponsored healthcare. And most employers, through no fault of their own, simply don’t have the bandwidth in-house to effectively manage their pharmacy benefits plan. If you’re one of these employers, often the easiest path is benign neglect. Simply ignoring your pharmacy benefits apart from the month before renewal and then signing on to whatever plan your broker recommends. But this strategy, or perhaps more accurately non-strategy, is a huge contributor to your ever-increasing drug spend.

By not knowing what’s going on under the hood, you’re allowing your broker and PBM to make a killing at your expense. You don’t know where your pharmacy dollars are going and why your drugs cost more every year even when your plan members' health isn’t improving,

You can fix this by taking some time to learn the basics of the pharmacy benefits world, and then develop a long-term strategy for reducing your pharmacy spend and improving the health of your plan members. Consider every aspect of your pharmacy benefits plan from PBM procurement to clinical programs for plan members to independent oversight and analysis of your claims data. Yes, it’ll be a huge undertaking, but you’ll reap at least 10 times the rewards if you get even half of it right. Work with an unconflicted consultant or advisor who has the required expertise and who’s working solely on your behalf.

2. Failing to Demand Value

I fully recognize that the word value is overused in the healthcare world almost to the point of being meaningless. But let’s use this definition: ensuring every dollar of your pharmacy spend leads to improved health for your members. Your pharmacy spend has probably risen close to 10% per year over the last few years but you likely haven’t witnessed a commensurate improved in your plan members’ health.

There are a number of things causing this mismatch between prices and outcomes: an obsession with innovation, rebate-driven drug formularies, PBM shenanigans, limited biosimilar penetration. You can address this gap by following the money. Ask you PBM how they set drug prices? Do they rely on rebates that drive up list prices and out-of-pocket costs? Do they make formulary decisions based on rebates or clinical criteria? Do they have a biosimilars first policy? A few hard questions can go a long way to cutting the waste from your pharmacy spend and ensuring you provide your plan members with the most effective drug therapies at the lowest possible cost.

3. Linking PBM Compensation to Drug List Prices

I’ve written before about how the PBM rebate system favors high list price/high rebate drugs over similarly or sometimes more effective lower-priced drugs. But it’s not just rebates that are tied to a drug’s list price. Many fees for the services provided by PBMs such as mail order pharmacy fees, specialty drug fulfillment fees, clinical services fees (e.g. medication management, prior authorization review) are tied to a drug’s list price and incentivize the use of more expensive drugs regardless of whether they are clinically superior to cheaper alternatives.

The FTC-ESI settlement includes requirements that PBM practices and fees are delinked from a drug’s list price. This includes formulary placement, members’ out-of-pocket costs, manufacturer compensation to the PBM, and community pharmacy pricing models. This is an excellent move that favours employers and their members but it may not be offered by your PBM.

Take the initiative to ensure that ever-increasing list prices of drugs aren’t being used by your PBM to pad their bottom line. Insist on a lowest net cost drug pricing model and transparent, and flat fees independent of a drug’s list price so you’re able to account for your pharmacy dollars.

4. Ignoring Health Outcomes

It’s not just taking steps to lower the price of drugs that’ll help lower your drug spend. Another key pillar to driving down pharmacy spend, and in fact total healthcare spend, is ensuring your members have access medications that are effective. This means making sure you consider comparative effectiveness when making formulary listing decisions. It also means providing access to clinical pharmacy services such as comprehensive medication management and pharmacogenomics testing so that individual members have the greatest chance of treatment success with their drug therapies.

Suboptimal medication use accounts for more than 15% of yearly healthcare spend, amounting to more than half a billion dollars. Investing resources in ensuring appropriate medication use has been shown to both improve health and reduce overall healthcare costs largely by preventing emergency room visits and hospitalizations, and should be a foundation of every employer’s pharmacy benefits strategy.

5. Not Addressing Prescribing Habits

Ideally healthcare practitioners will consistently prescribe the lowest cost, most effective medications for your plan members. But in truth, prescribing behaviours are complex. Evidence shows that physician prescribing decisions are often influenced by factors other than the clinical effectiveness and cost of a medication. These include marketing by pharmaceutical companies and requests for specific medications from patients. You need to be aware of these influences and wherever possible, implement interventions to promote high-quality prescribing habits and curb inappropriate ones.

Several interventions may be effective in changing prescribing habits: academic detailing which provides unbiased information about the cost and clinical effectiveness of drugs; access to the prices of medications and alternatives at the time of prescribing; and letters to outlier prescribers, flagging potentially inappropriate prescriptions and encouraging them to review their prescribing habits.

The Bottom Line

PBM reform is a long overdue, important step in helping employers control their pharmacy spend by requiring greater transparency and accountability, but it’s not a silver bullet. Employers still need to understand the many factors, PBM- and non-PBM-related, contributing to the ever-increasing price of prescription drugs and take steps address them.

Start by looking at whether these five factors might be unintentionally driving up your drug spend and if so, develop a concrete plan to address them.

That’s all for this week.

See you in two weeks,

Nina

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Pharmacy Benefits Uncut is produced by Healthcare Decision Making, a consultancy that helps small and medium sized employers optimize their pharmacy benefits plan. We offer a comprehensive range of services focused on three areas: PBM procurement, ongoing management of your pharmacy benefits plan, and self-policing and oversight of your pharmacy spend. To learn more about how Healthcare Decision Making can help you, email Nina Lathia at nina.lathia@healthcaredecisionmaking.com