Self-insured employers and benefits professionals are facing a crisis. Each year, they see prescription drug spending increase at alarming rates. According to Conduent’s annual survey, 55 percent of employers spend 20 percent or more of their total health care budget on pharmacy benefits for their employees. In addition, 75 percent of employers say “affordable pharmacy benefits” has the highest impact on managing health care costs long term.
These costs show no signs of slowing down, and many in the benefits industry predict a continued increase in prescription benefit costs. There are a few trend drivers that may explain this: expensive patented drugs, a rise in specialty medications, e-prescribing errors that select name-brand drugs instead of generics or the high cost of compounding medications.
In an effort to find and combat wasted spending, benefits managers are working more closely with pharmacy benefit managers. Employers often find this system one of the most confusing and complex to navigate.
It’s a pain point for members, too. Patients don’t understand why some drugs require prior authorization, which prescriptions can be substituted for generics or why their copays are different for one drug versus another. Working closely with a PBM can be a great way to monitor effectiveness and decrease utilization costs without compromising quality member care.
I’ve spoken to some benefits administrators who want to know exactly how PBMs operate. Here’s a primer:
- Pharmacies submit claims through PBMs on behalf of employer groups and insurance companies.
- PBMs determine eligibility and pay the pharmacy for the claim (minus the copay).
- PBMs assign and determine copays for the member.
- PBMs review and approve prior authorizations.
- PBMs create and manage formularies (the list of approved drugs on any given plan).
Essentially, pharmacy benefit managers function very much like any other insurance company, though their focus is exclusively on prescription drugs.
Employers sometimes express difficulty in working with PBMs because of their business model, which can lead to a lack of transparency. They are highly profitable companies and one of the reasons is their ties to pharmaceutical companies. Many PBMs receive manufacturer rebates from drug companies if they include these drugs on plan formularies. They aren’t required to share these incentives with employers — some pass along rebates, but some don’t.
It’s up to employers to actively manage this relationship, and they can do so by asking a few key questions:
- Do you allow audits on prior authorizations?
Prior authorization is an extra step between the doctor’s visit and the patient picking up the prescription. This process is designed to ensure the drug is allowed under the plan and search for generic alternatives to more expensive, brand-name drugs. While sometimes frustrating to patients, prior authorization is crucial to reducing prescription spending for both the employer and the employee. It encourages doctors to find less expensive, equally effective alternatives to pricey drugs that may offer no extra clinical benefit to patients.
PBMs should allow employers to audit their plan’s list of drugs that require prior authorization and the requirements for those prior authorizations, but many don’t. Employers need to ask this question to encourage flexibility in their PBM partnership.
- Do you pass along 100 percent of drug manufacturer rebates and discounts to your employer clients?
As mentioned above, rebates and discounts from pharmaceutical companies are one of the reasons PBMs are such profitable businesses. If you’re thinking this sounds like a conflict of interest, you’re not alone. Many benefit administrators find themselves in an adversarial relationship with their PBM for this reason. Employers are tasked with finding cost savings in their prescription spending while still offering great benefits that attract talented employees. It’s a steep hill to climb, and they can’t do this without the cooperation of PBMs, who are instead incentivized by close relationships with drug manufacturers.
Benefit teams should ask PBMs to pass along 100 percent of any rebates or discounts they receive to employers. Even if it results in only a portion of this spending returning to employers, this conversation signals to PBMs that employers are demanding transparency.
- Can we work together to customize our formulary to suit our needs?
Customizing and adjusting your formulary is a critical step in finding prescription benefit savings. The formulary is a list of approved drugs for any given prescription plan. Employers can find areas for savings by identifying costly drugs, finding appropriate clinical substitutions and adjusting the formulary to include or exclude these drugs.
One employer I worked with analyzed their prescription benefits data and found 18 members taking prescription fish oil. When written as a prescription, fish oil supplements are more expensive than over-the-counter products; however, OTC products have been shown to be equally effective and are available in the same dosage. The employer worked with their PBM to exclude fish oil from their formulary except in cases of prior authorization for patients with a triglyceride level above 500 who had a clinical reason for not trying over-the-counter options.
This is just one way in which formulary management can help employers find wasteful spending in their prescription benefit. If a PBM does not allow the employer to customize their formulary, they’re a step behind in effectively managing their benefits spend.
Only about 5 percent of pharmacy benefit managers allow prior authorization audits, pass along rebates and discounts and enable proactive formulary management. If your PBM isn’t allowing this level of pharmacy benefit design, ask these questions.
Only through careful data analysis, active monitoring, and flexible partnerships can employers and PBMs work to reduce the trend of rising drug costs.
Dr. Rance Hutchings is the chief clinical officer for Artemis Health. He assists self-insured employers in finding cost savings in their benefits data without compromising great employee benefits. Before joining Artemis, Hutchings served an eight-year term on the Beneficiary Advisory Panel in Washington, D.C., for the Department of Defense, taught graduate level pharmacology at Brigham Young University and was president of Intermountain Drug Consulting PC, which specializes in helping health plans decrease costs while improving health and quality of care.