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?
Sponsors of prescription drug plans that decide to change pharmacy benefit managers (PBMs) may need help with pre- and post-implementation tasks. An experienced consultant can work with a sponsor to navigate complex contractual terms, develop an implementation plan, and conduct annual audits to ensure that the sponsor continues to receive the pricing terms and rebates negotiated with the PBM.
This paper by Milliman’s Angela Reed and Brian Anderson explores the PBM implementation process. The authors highlight key items that sponsors must consider for a successful PBM implementation and how an implementation manager can assist.
The high cost of therapy for patients with chronic hepatitis C (HCV) infection has been an important topic of discussion for key stakeholders in pharmacy benefit design and management. Multiple effective treatments have been introduced, with cure rates approaching 100%.
Although costly, curing HCV early on can prevent serious liver complications, such as hepatic cirrhosis, organ failure, and cancer, for the approximately 2.7 million affected people in the United States.
In 2016, there was a downward cost and utilization trend for the HCV Specialty category. Express Scripts reported in its 2016 Drug Trend Report that utilization of HCV therapies had decreased by 27.3% and the unit cost had decreased by 6.7%. The cost per member per year (PMPY) for HCV drugs decreased to $25.26 PMPY from $38.44 PMPY the previous year.
Why have cost and utilization suddenly decreased after two years of steady growth?
In this A.M Best video, Milliman consultant Brian Anderson discusses strategies for managing pharmaceutical drug costs. Among the strategies he talks about are limited pharmacy networks, consumerism through copay assistance programs, and price shopping.
Employers and other plan sponsors have the option of carving in or carving out their pharmacy benefit programs from their medical benefits. There are a number of important factors that should be considered when deciding whether or not to carve out pharmacy benefits. This article identifies the advantages and disadvantages of both options and raises important questions to consider when contemplating a move to carve-out.
When the pharmacy carve-in approach is used, the employer contracts directly with the medical health plan vendor for medical and pharmacy benefits. The vendor will either administer the program in-house or contract with a pharmacy benefits manager (PBM) vendor to process pharmacy claims and administer the pharmacy program. Because the employer contracts directly with the medical health plan vendor, there is no direct relationship with the PBM.
A pharmacy carve-in is typically used under the fully insured model. In 2015, the Pharmacy Benefit Management Institute (PBMI) reported 23% of smaller employers (less than 5,000 lives) and 7% of larger employers (greater than 5,000 lives) were fully insured. Under the fully insured model, the employer pays a premium to the insurer and the insurer assumes the risk of the total claims amount rather than the employer.
When the pharmacy carve-out approached is used, employers contract directly with a PBM vendor to administer their pharmacy benefits program.
A pharmacy carve-out is typically used under the self-insured model. In 2015, PBMI reported 77% of smaller employers and 93% of larger employers were self-insured. Under the self-insured model, the employer assumes the risk and benefits from managing costs. Pharmacy stop-loss insurance may be purchased to mitigate the risk of total claims amounts going over a certain threshold. A pharmacy carve-out can also be used with the fully insured model, although this is less common.
Prescription drug plan sponsors must consistently evaluate and update their pharmacy benefit manager (PBM) contracts to control costs. In their article “Medicare Part D PBM contracting strategy,” Milliman actuaries Michael Polakowski, Nicholas Johnson, and Todd Wanta highlight numerous contract provisions that plan sponsors should examine and renegotiate to reduce pharmacy expenses.
Here’s an excerpt:
As contracting has become more complex, the following contract provisions are becoming more common as plan sponsors look to reduce their pharmacy expenses.
• Price protection. In the current environment of high-cost trends for brand-name drugs, price protection can offer more inflation protection than discount guarantees. Any price increases above a predefined threshold are paid back to the PBM by the manufacturer and considered rebates by the Centers for Medicare and Medicaid Services (CMS). Plan sponsors should carefully consider how price protection can affect Medicare bids and end-of-year settlements.
• Membership. More favorable dispensing fees, discounts, and/or rebates may be achieved for plan sponsors with higher membership counts. Improved contracting levels are specified directly in the PBM contract.
• Discount/rebate guarantees. Discount and rebate guarantees may be presented in many different forms, e.g., rebates per brand-name script or on a per member per month (PMPM) basis, or discounts off AWP or the maximum allowable cost (MAC) list. Rebate guarantees may exclude certain drugs. At a minimum, plan sponsors should ensure the targets are clearly understood and auditable. Plan sponsors should be wary of proprietary definitions when industry definitions are available for reference. Plan sponsors should also ensure that reimbursement mechanisms are in place if targets are not achieved.
• Rebate maximization. Because of the structure of the Part D benefit, rebates can be a more effective way to reduce Medicare bids than discounts. Over the last few years (and with the increasing cost of specialty drugs), plan sponsors have increasingly negotiated with PBMs to maximize rebates rather than discounts. The financial incentives for this approach are discussed by Milliman consultants Adam Barnhart and Jason Gomberg in a recent article for the AIDS Institute, “Financial Incentives in Medicare Part D.”1
• Multi-year agreements. Some PBMs have been willing to provide discount or rebate improvements over time if plan sponsors commit to multi-year contracts. Plan sponsors should be sure to verify that the improvements are contractually guaranteed and meet or beat market-wide improvements. Even multi-year discounts should have market check provisions to allow plan sponsors the ability to receive better terms when the market changes.