Before the novel coronavirus hit, employer health benefits were already expected to rise 5% this year, according to the National Business Group on Health’s (NBGH) 2020 Large Employers’ Health Care Strategy and Plan Design Survey. The survey estimated the total cost of health care to be $15,375 per employee, including premiums and out-of-pocket costs for employees and dependents. Now, experts are predicting health care costs will rise even higher. Covered California, the state’s insurance marketplace, predicts insurers and employers could face $34 billion to $251 billion in costs related to COVID-19 testing, treatment, and care.
The high and growing cost of prescription drugs already imposed a financial burden on employees and employers who sponsor health benefits. But now pharmacy benefits alone account for 21 cents of every health care dollar, on average.
With benefits being one of the highest cost drivers affecting bottom lines, it is one of the first areas businesses tend to look to when needing to reduce expenses. However, HR leaders can find themselves caught between a rock and a hard place – attempting to reduce benefits costs without leaving employees vulnerable. Benefits consultants and advisors are in a unique position to help their clients make this decision – a particularly important role as our economy tightens – and enable them to reduce the cost of their pharmacy benefits without reducing value for employees.
The driving forces behind high Rx claims
For a long time, HR leaders have believed that realizing substantial pharmacy savings is highly disruptive to members and comes at the expense of employee satisfaction. In reality, this is rarely the case. In the typical self-funded plan, just 1% to 2% of pharmacy benefit members drive 40% to 50% of plan costs. If benefits professionals provide this information, most employers naturally ask, “How can such a small portion of members account for this substantial share of costs?” There are several drivers behind this alarming statistic.
Accepting a black box of benefits
Simply paying a premium and taking what is offered by the insurance company may sound like the easiest approach to managing pharmacy benefits. In reality, businesses – especially self-insured small-to-mid-sized companies – are often stuck paying 25% to 30% more in annual costs than necessary in a carved-in pharmacy arrangement.
For example, Wagstaff Inc., a 500-employee manufacturing company in Washington, found that it could save more than $200,000 annually on pharmacy benefits by opting to carve-out its pharmacy benefits instead of lumping them in with the overall health care plan. Employee benefits consultants have the knowledge and resources to help businesses make these decisions, and now more than ever should advocate for their clients to have more in-depth access to plan utilization instead of accepting a generic program.
Lack of visibility into claims data
An effective strategy begins with analyzing prescription claims data. Through the analysis, you can help your client determine which drugs and drug classes are driving costs for their plan. Many times, one or two high-cost drugs can have a significant impact on the overall budget. Understanding which medications the plan’s members rely on is essential to select or customize a formulary that will minimize employee impact.
Off-label prescribing and low clinical value drugs
Businesses need to support their member employees with chronic and rare conditions and ensure they have access to the treatment they need. But taking care of employees doesn’t necessitate wasteful spending. While pharmacy benefit managers (PBMs) have automated rules in their claims processing systems to help approve and deny drugs, there is more to be gained by putting an independent pharmacist to work conducting manual prior authorizations for the plan. When something seems off, this clinical team should work with prescribers to ensure the member receives the best drug at the right dose, per FDA guidelines.
For example, independent reviews help prevent the off-label use of prescription medications. Take into consideration the diabetes drug Trulicity, which boasts great therapeutic benefits for the management of Type II diabetes. In some cases, physicians may opt to prescribe Trulicity to help patients with weight loss, a use for which it is not approved by the FDA. Since most plans don’t cover weight-loss drugs, a prescription for Trulicity for weight loss should not be authorized, saving a plan anywhere from $1,400 – $1,600 per month.
An independent review can also intercept prescriptions for low clinical value drugs. Examples include “combo” therapies, like Vimovo, which combines two OTC medicines (naproxen and esomeprazole magnesium) into a single, patented prescription drug to treat arthritis pain. A 30-day supply of OTC therapy retails for $40, whereas Vimovo costs around $2,600, depending on the pharmacy. Unfortunately, many prescribers and patients, influenced by pharmaceutical sales reps and commercials, are unaware of the true cost of medications compared to other available, less expensive alternatives. Once they understand their options, most are more than willing to pursue lower-cost therapies.
Saying no to the status quo: optimizing pharmacy benefits
Using data-driven insights and applied clinical expertise, it is possible to strike the right balance between access and cost. Carved-in pharmacy arrangements rarely, if ever, provide the transparency needed to understand how a plan’s members utilize the benefit so you and your client can make intelligent plan design decisions. Carved-out agreements empower you both with data and provide more options to control pharmacy benefit costs.
Going back to the black box example: Advising clients to select a plan that enables customization of the formulary provides much more control overspending. This option allows employers to decide which medications to cover or exclude, based on their members’ needs. However, to effectively optimize a formulary, a pharmacy or clinical expert is needed.
As the economy continues to contract in response to the COVID-19 pandemic, the phrase “every dollar counts” takes on heightened meaning. As a benefits consultant, you will be best positioned to serve your clients if you have an established relationship with a team of clinical experts you can trust to evaluate the medical necessity, appropriateness and effectiveness of prescription medications. It’s important to know that your clinical partner is aligned with your clients’ goals and views everything through the lens of what is in the medical best interest of members and the financial best interest of the plan sponsor.
As prescription drugs are currently the most expensive component of health care benefits, employee benefits consultants have an opportunity to proactively step in to help their clients identify, address and effectively manage pharmacy-related factors that are driving up their plan costs. By understanding the driving forces behind rising Rx claims and finding ways to optimize clinical utilization, benefits consultants can help their clients successfully navigate pharmacy benefits in a cost-efficient, member-first way.