The Employer's Guide Blog for Overseeing PBMs

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Pharmacy Benefits: Eight Ways it May Unfold in 2014

Pharmacy Benefits Managers (PBMs) are offering more complex programs and adopting data-mining tools to improve outcomes — not necessarily financial — for stakeholders.  Payers and their agents, however, continue to use antiquated tactics to alleviate the pain [cost] associated with offering pharmacy benefits; cutting benefits and increasing member cost-share.  Better planning and tougher decisions are required to rein in rising costs.

I.  Generic Drug Price Increase

While most of the country is ecstatic about the “Patent Cliff” not many payers have considered the potential negative effect on relative prices for generic prescription drugs.  It only makes sense, as competition decreases and demand increases, prices will eventually follow suit.

Furthermore, traditional PBMs will lose valuable manufacturer revenue or rebates.  Some PBMs will undoubtedly look to make up the difference thus generic drug prices, your MAC prices, will be the first stop.

In the online marketing world the key to success, in my opinion, is a relentless focus on A/B split testing.  The same is true for payers; where those whom relentlessly monitor drug costs throughout the year, making changes on the fly, minimize expenditures.  

Those payers whom more or less sign the contract, cut the check and wait for the renewal period unknowingly pay for the private corporate jets!  Find a reliable source for reference pricing and relentlessly monitor costs.        

II.  Drug Formulary Tier Increase

Specialty drugs are the fastest growing segment in the pharmaceutical supply chain.  The most common cost-share tier among our plan sponsors is three-tier — generics, preferred brands, non- preferred brands. We are starting to see the emergence of innovative cost-share structures with five or more tiers, but it is unclear whether these will become standard practice. 

The co-pay differential between tiers, in our pharmacy, continues to widen.  The difference between tier one and tier two co-pays has increased to $21 (compared to $5 about seven years ago).

III.  Fewer Employers to Offer Retiree Prescription Drug Plans
The percentage of employers that plan to continue offering prescription drug plans to Medicare-eligible retirees has dropped dramatically in the past two years, according to a study released May 29 by Buck Consultants L.L.C.

Fifty-five percent of employers that now provide pharmacy benefits for Medicare-eligible retirees said they plan to continue offering the benefit, down from 75 percent in the New York-based consulting firm’s 2011 survey.

Courtesy of
Another 33 percent of employers said they were unsure if they would continue offering prescription benefits to Medicare retirees after 2014, a significant increase from the 19 percent who were unsure in the 2011 survey.

“Employers have options for controlling prescription drug costs for Medicare-eligible participants,” Paul Burns, an Atlanta-based principal at Buck Consultants, said in a statement.

“For example, since retiree drug subsidy payments are no longer tax-exempt and do not keep pace with rising drug costs, some employers are considering moving to an employer group waiver plan to take advantage of additional subsidies available as a result of the Patient Protection and Affordable Care Act,” he said.

IV.  Medication Therapy Management: Non-traditional Method to Alter Behavior

MTM is a distinct service or group of services which optimize therapeutic outcomes for individual patients. As of 2013, MTM is approved for provision to Medicare Part D enrollees who have multiple chronic conditions (with a maximum of three plan selected chronic conditions being the lower limit), are taking multiple Part D drugs, and are likely to incur annual drug costs that exceed $3,144.  All Medicare beneficiaries who meet the above criteria as defined by each plan are automatically eligible to receive MTM services unless they voluntarily opt-out.

On the other hand, the provision of MTM services to non-Medicare enrollees by commercial health plans is less defined. Each plan has the liberty to devise different eligibility requirements together with different MTM service component which makes cross-program comparisons in such a heterogeneous environment quite difficult.  

Supporters of MTM (professional pharmacy societies, policy experts, etc.) would like to show health decision makers that tracking and evaluating MTM services outputs using Current Procedural Terminology (CPT) codes (approved as Category I codes in 2008) that MTM services result in better health outcomes cost reductions and positive return on investment in patients that need better medication management.

V.  Health Exchanges; Private and Public By Tom Norton

Even though the specifics of how PBMs under Obamacare will operate are unknown, I was told by many that if you want to understand how this new Obamacare PBM market is likely to play out, you should look to other insurance markets for insight. 

In particular, they said, the PBM operations in the Medicare Part D marketplace and even more to the point, the Rx services being offered by PBMs in the new private health exchanges, will provide a sense of the PBM offerings to be provided in Obamacare.

Perhaps an even more important PBM real world example is what is going on right now in the private health exchange environment. This is because it closely resembles the insurance concept planned for Obamacare.

Over the past few months, several large companies (Walgreens, IBM, GE, and others) have announced that they are moving their employees out of “defined benefit” health insurance plans, and placing them into “defined contribution” programs. This will be accomplished by utilizing private health exchanges. What exactly are these exchanges?

Private health exchanges have several different models. Some provide “self insured” programs to provide healthcare to individuals, while most offer group health insurance to employers under “fully insured” programs. The objective of both is to reduce the cost of healthcare to the employer.

This approach differs from today’s “defined benefit” insurance plans in which the PBMs are frequently “carved out” of the general health benefit and stand alone as separate services. PBMs do save the insurer money in this environment, but it’s thought they could save more if they were “carved in” to the insurance offering.

VI.  Self-Insured vs. Fully-Insured

I have noticed a trend in the PBM industry where self-insured organizations like employers and unions are making the transition to all-cash programs. Although I’m unsure to all the reasons for the change, one thing is clear and that is at least part of the change is due to the uncertainty provided by PPACA. Payers want to have control and relinquishing it is a scary proposition.

VII.  Limited Pharmacy Networks
After cost-sharing, establishing pharmacy networks has been a popular approach to cost management. Limited pharmacy networks, not talked of much before 2010, are more of a consideration after the contract dispute between Walgreens and Express Scripts.  

Providing the broadest access to members may no longer trump the more favorable pricing of a narrowed network.  A large and growing supply of retail pharmacies makes the limited network approach possible.  

VIII.  Specialty Drugs

Payers continue to be challenged by rapidly rising prescription drug costs, particularly specialty drugs.  However, traditional [and some transparent] Pharmacy Benefit Managers offer the same elixir for controlling these costs as they did a decade ago: increase patient use of mail-order, use of preferred or narrow pharmacy networks, a formulary design which promotes preferred drugs, reduce patient co-share for better outcomes.

While the aforementioned tactics do assist in controlling costs, they’re standard practice and are not the aggressive measures necessary to help reduce or control spending.  Payers should hire fiduciary PBMs – those legally obligated to truly put clients and their members first; before shareholders and profitability.

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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