Cost control measures for growing employer medical and pharmacy exposure

Rising prescription drug costs are old news. What is new, however, is just how high they have gone. Take the recent case of a member whose annual pharmacy spend is expected to exceed $7 million per year. That is the annual spend for one member. It turns out the medication is for a life-threatening, chronic, hereditary condition, and the medication will be needed for the remainder of the member’s life. This means no end in sight for the employer-sponsored insurance plan.

In the first year, the stop-loss coverage will cover the majority of this cost; however, there is the potential for a 40% to 60% increase in stop-loss premiums the following year, and even so, this member will be lasered out of any coverage in following years. In other words, the employer-sponsored health plan will be liable for this full amount going forward, plus any additional costs for this individual for medical or other pharmacy expenses (e.g., emergency room visits, hospitalizations, etc.).

Can employer-sponsored plans afford to absorb that kind of additional, annual spend in their healthcare budgets? In this particular case, the drug keeps the member alive, so not covering the medication is not an option, morally or ethically. But if this cost potentially bankrupts the plan, there will be no coverage for this member anyway.

So what can employers do to protect against this claim and others?

1. Stop-loss coverage
First, for those self-funded employers, make sure there is stop-loss insurance in place, even if it is at an individual limit of $750,000 to $1 million. It may seem like the smart move to exclude this additional cost from the bottom line (especially for larger employers), until that $10 million claim hits. In addition, make sure the stop-loss policy covers the pharmacy expenses. Sometimes, when an external pharmacy benefits manager (PBM) is used, pharmacy costs are excluded from the carrier’s stop-loss coverage. It is always prudent to shop around and find a policy that will cover both medical and pharmacy expenses. Many of these extremely high prescription drug claims are related to specialty medications. It will be important to understand how the stop-loss policy will coordinate with these specialty medications and how they will want front-end coordination of claims as they develop. The stop-loss policy may only be a stop-gap measure (especially if the member is later lasered out of future coverage), but such a policy will give you time to reassess your claim issues and make a plan for future cost containment.

2. Notification of large claims
Alongside reinsurance, the plan should be sure to have the appropriate triggers in place for notification of high-dollar claims—pharmacy or medical. It is better to be informed in order to research the situation and prognosis. Do these participants need extra support from Human Resources (HR) or should they work with the carrier care management team, including large claim management or clinical review? Is assistance with disability or other benefits necessary? As in all cases, but specifically large claims, be mindful of HIPAA guidelines when working through large claim management.

3. Prudent governance
It is typical for both the medical carrier and PBM to pay claims on behalf of the employer-sponsored plan. Thus, it is important to gain a full understanding of how the medical carrier and PBM are controlling costs on behalf of the plan. Are they acting as good fiduciaries of the plan? Speaking with them at least quarterly will ensure the plan is up to date on the latest medications and programs to curtail expenses. In addition, receiving monthly or quarterly reports on plan activity is sensible.

Other prudent considerations to be contemplated could be:

• What incentives does the carrier or PBM have that might impact their decisions (i.e., rebates)?
• Is there formulary management?
• Would step therapy be a practical option for the plan?
• Should a mandatory generic drug requirement be applied?
• Is there a high-cost radiology plan in place?
• Does the plan have an external review process for high-cost cases?
• What provisions are in the plan in terms of case management or other navigation/assistance programs?
• Should the plan offer a second-opinion service and even be mandatory for high-cost claims?
• Consider looking to the manufacturer for any discount programs or other assistance for high-cost medications. Most of these programs are aimed on the member side, but sometimes the manufacturer will work with employers to get the lowest price possible. Be sure the PBM is also getting the best deal and understand the rebates, if any. What portion of rebates, if any, does the PBM retain? Could they actually be incentivized by these payments to approve coverage for certain medications?
• Stay on top of the carrier’s policies and procedures for the most expensive tests and medications. This will help to address the member questions as well as understand how the plan covers these certain high-cost medical and pharmacy claims.

4. Narrow networks
Narrow networks are increasingly used across employer-sponsored plans to assist in controlling costs for both medical and pharmacy spend. Narrow networks may not work for all employers, but for those in metropolitan areas where high-performance networks or accountable care organizations (ACOs) are prevalent, it is definitely a strategy to consider. For employers with large employee concentrations in rural areas or in cities where certain pharmacy chains or provider networks are not in play, this strategy may not work as well. However, the plan may also consider mandatory mail order programs as an alternative for maintenance medications.

5. Member outreach
Member waste can be a significant issue. For medications that can have high adverse reactions, the plan may want to consider a trial period, such as a two-week supply versus a 90-day supply. During this period, a determination of medication effectiveness and tolerance will be made before continuing forward. For injectable medications, assistance could be provided to make sure they are administered properly and to address any storage or other potential contamination issues.

6. “Costs” to cost control
As with all of these savings measures, you need to also gauge the “noise” factor relative to the cost savings. For a minimal projected savings, the increased member phone calls may not be worth it. Reviewing the plan’s population against its current claim activity will provide a measure of disruption and identify any potential red flags.

In addition, most PBMs and carriers charge for these cost-savings measures. Periodically review the effectiveness of the programs for which you choose to pay. Don’t be shy about digging in and asking how they really saved you money. If they cannot prove savings (not just number of phone calls), then stop paying them for this service and consider third-party alternatives.

There may be members who want a certain procedure or medication that is not covered under the plan for their particular situations. Be sure you know how to assist them with navigating non-covered services and negotiating down these costs.

7. Outlook
With medical and prescription drug claim costs at all-time highs, employers and plan participants have the potential to bear the related expenses. It has never been more important for employers to be asking more of their medical carriers and PBMs. Asking questions and digging in when necessary is only prudent for the long-term financial stability of the plan, and Milliman can be the partner to assist on these issues.

This article first appeared in the January 2018 issue of Health and Group Benefits News and Developments.

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2 thoughts on “Cost control measures for growing employer medical and pharmacy exposure

  1. This is all well and good for the traditionally insured crowd, i.e. employer-sponsored and ACA, but what about those that do not have access to “group” insurance?

    Or, even for that matter, those that do but want more control over their expenses?

    A renewed focus on primary care, especially direct primary care, can achieve even higher levels of success via cash pricing, price transparency and subscriptions for unlimited, 24/7 access via in-office visits, text, email and secure video.

  2. Hi, John,

    Yes, I agree – this discussion was aimed more at the employer side of the equation. As consumers, we have other ways to help control costs. I agree that a consistent “medical home” or primary care –centered model makes a lot of sense.

    However, there are a few more ways we can all help control our medical expenses, including:

    • Stay in your insurance network, where possible. Use apps and online tools and be sure you are using the correct network for your particular plan. This will help maximize your plan’s savings.

    • As your provider questions – Is this test necessary? What would happen if we take a wait and see approach? It may be that an expensive test is needed, but it could also be the case that the doctor is open to the more conservative approach and delaying such a test until truly warranted.

    • Shop around for pricing for tests and services and don’t necessarily go to the facilities your provider recommends. There are certainly ways to save money with this approach, especially when we now have a lot of providers who refer care to the facilities where they have ownership to maximize their revenue. There are also consumer tools such as Healthcare Bluebook that help consumers shop for the best pricing for medical care.

    • Consider generic or preferred brand medications, and ask your provider to help you find the lowest cost alternative for any medications you need. Many drugs have bio-equivalent alternatives, so have your formulary handy when you are in the doctor’s office to make sure you’re keeping your costs down.

    • Monitor your Explanation of Benefits statements from your insurance company and question any overbilling or potentially fraudulent claims. It is estimated that 3-15% of all medical claims can be attributed to fraud or abuse (see General Accounting Office, National Healthcare Antifraud Association Reports, Congressional Budget Office and U.S. Chamber of Commerce reports).

    Thank you for your comment, and I agree that we as consumers also need to take control of our own healthcare spend. If we can all do our part, maybe we can take back this runaway train!

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