Employers, PBMs Changing the Game on Pharmacy Benefits Delivery

March 14, 2011

With the cost of prescription drugs increasing 11 to 14 percent annually (an estimated $390 billion by 2014), plan sponsors such as Caterpillar Inc. and BorgWarner Inc. are thinking outside of traditional delivery models to provide pharmacy benefits. With the help of health plan providers and pharmacy benefit managers, proactive companies are experiencing flat or even negative cost trends by using preferred pharmacy networks, developing custom formularies, and encouraging members to use generic medications. Many require mandatory mail-order use for maintenance medications, and some absorb the entire cost of generic medications to treat chronic conditions like diabetes and cardiovascular disease.

Considering that diabetes is the top driver of total cost increases in the traditional drug section, this makes good fiscal sense. And, according to an April 2010 Drug Trend Report by Express Scripts Inc., behaviors such as forgetfulness and procrastination result in $163 billion in health care spending annually. Auburn Hills, Michigan-based BorgWarner provides diabetes supplies free of charge and, along with Caterpillar, doesn’t require copayments for generic medicines to treat diabetes and other chronic conditions.

“Over the past several years, we’ve worked with a pharmacy benefits manager [Milwaukee-based Restat] to develop a cost plus pharmacy model with a limited network of two major retailers,” says Todd Bisping, health care benefits manager for Caterpillar, the Peoria, Illinois-based manufacturer of earth moving and agricultural equipment. Caterpillar’s 150,000 members enjoy low in-network copayments. They also aren’t required to spend money on copayments for generics that treat hypertension, diabetes and high cholesterol or on all generic medicationss from one of the network providers.

“We’ve experienced a negative cost trend since 2004 as a result of our formulary management and on the network and contracting side of the plan, without changing copays except for the zero-dollar feature,” Bisping says.

According to a study by consulting firm Milliman Inc. commissioned by pharmacy benefit manager Restat, employers can save up to 13 percent annually by adopting a “preferred” pharmacy benefit strategy.

“Closed networks such as our Align group of pharmacies cuts the fat from the traditional pharmacy benefit model and simplifies the benefit system,” says David Kwasny, Restat president. “By creating plans that use preferred pharmacy networks and favor generic drugs, plan sponsors and members can save $30 billion on prescription drugs every year.”

Plan sponsors are also limiting their formularies to drive members to use generics. A 2010 Employer Survey on Purchasing Value in Health Care report by the National Business Group on Health and Towers Watson & Co. reveals a trend toward limited formularies that offer broad coverage from a clinical perspective but limit therapeutic choices within drug classes to achieve better pricing and lower costs. And in 2009, the Pharmacy Benefit Management Institute surveyed benefit managers and found that 85 percent of plan sponsors use a benefit design with three or more tiers. Four and five-tier designs are become increasingly common, fueled by concern over rising specialty drug costs.

Automotive industry components manufacturers BorgWarner worked with insurer Cigna Corp. to put several innovative programs into place, including a four-tiered formulary with a step-therapy program that requires its 4,000 members to try the generic of a drug in certain classes, including nonsteroidal anti-inflammatory drugs, statins and proton pump inhibitors, before using the brand name. The company offers a fixed copayment for generics and coinsurance for its brand-name tiers.

“We wanted to give employees choice, while promoting generics as a lower cost, effective option,” says Michelle DuFour, senior manager of global benefits at BorgWarner. “We did a lot of education to communicate what drugs fall into which of our four tiers and to emphasize that we are keeping a low copay for generics.”

DuFour says BorgWarner has experienced a flat trend in the use of generic drugs since 2007 and that the use of generics was 76.6 percent in 2010. For every 1 percent increase in the use of generics, BorgWarner saves 2 percent, she says. To help employees make smart decisions, they can link to Cigna’s Pharmacy Price Quote tool.

“Our members can find the lowest cost, in real time, for any drug, and can find lower cost alternatives for the drug, if available, that they can discuss with their physician,” DuFour says. “It provides another level of choice and consumerism.”

BorgWarner promotes prescription medication compliance and offers free diabetes supplies, smoking cessation prescriptions, a narcotics management program and a psychiatric case management program. Additionally, members with chronic conditions are asked to use the mail-order pharmacy to boost compliance and save money.

“BorgWarner is ahead of the curve,” says Matt Houser, a senior clinical account manager with Cigna Pharmacy Management in Cleveland. “Whether an employer customizes its network or formulary, the pharmacy plan should be designed around an employer’s culture, and its members’ needs.”

There’s a tremendous opportunity for plan sponsors to drive members toward generic drugs, and the savings will be passed onto plan sponsors and consumers alike, says Steve Blumenfield, chief marketing officer for Minneapolis-based Prime Therapeutics.

“By 2015, every therapeutic disease class [of drugs] will have a generic alternative, including two major cholesterol drugs,” he says. “Our clients are being proactive about pharmacy benefits and are willing to restrict access to brand-name drugs to save on costs so they can continue delivering the same level of benefits.”

According to PBMI, 96.7 percent of employers surveyed include a mail-service pharmacy in their benefit. Blumenfield believes such programs are essential. “Plan sponsors should provide incentives for members to take advantage of the mail-order program, such as a three-month supply for a two months’ cost—because the facts support that a 90-day fill leads to greater compliance, which helps prevent complications and hospitalization, and is therefore a huge cost savings for employers.”

“The new model is like a bazaar, where everyone has the ability to claim their market share,” Restat’s Kwasny says. “For example, within the Align network, members can go online to compare costs, pharmacies and brand vs. generic drugs. Pharmacy plans that offer full visibility and transparency help consumers make good decisions and save money for everyone. It’s good medicine ... health care reform without legislation.”

Restat client Caterpillar agrees: “Our members are happy that copays haven’t increased in several years and of course they like the zero-dollar copays,” says Bisping. “We spend roughly $150 million annually on prescription drugs, so every dollar counts.”

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