Employers Act to Control Prescription Drug Spending

Appropriate drug use seen as alleviating the need for more expensive care in the long run

By Stephen Miller, CEBS June 7, 2013

A majority of U.S. employers (71 percent) spent 16 percent or more of their total health care budget on pharmacy benefits, according to a nationwide survey by Buck Consultants.

More than 250 organizations participated in the firm's latest Prescription Drug Benefit Survey, representing a broad range of industries and more than 3.9 million covered individuals. The survey was fielded in the first quarter of 2013.

Ninety-nine percent of respondents provided active employees with prescription drug coverage, an increase from 96 percent in the firm's previous survey, conducted in 2011. ​

(Update: Pharmacy benefit plan costs typically represent about 18 percent of employer-sponsored health benefit plan costs in 2014, compared with roughly 3 percent in the 1980s, according to Buck Consultants via Benefits Quarterly, Third Quarter 2014).

Escalating Costs

Eighty-seven percent of respondents reported that affordable pharmacy benefits will have a major impact on containing health care costs over the long run. This indicates that employers believe that appropriate prescription drug use can substitute for more expensive medical services.

“Pharmacy benefit costs continue to increase and, on average, currently represent more than 15 percent of employers’ total health care costs,” said Paul Burns, a Buck Consultants principal. “If not managed effectively, prescription drugs can represent a constant financial drain on company resources and undermine the return on investment of a plan sponsor’s entire health care benefits program.”

Negotiating with PBMs

The survey revealed an increase in the percentage of companies that contract third-party pharmacy benefit managers (PBMs) to process and pay prescription drug claims, signaling that many employers turn to PBMs for better drug prices.

According to the findings, 61 percent of employers now use PBMs compared with 57 percent in 2011 and 47 percent in 2009. The majority (68 percent) cited “pricing competitiveness” as an extremely important PBM service.

“With many medications having double-digit price increases and with the continued consolidation among PBMs, this is a buyer’s market for PBM pricing,” said Burns. “Employers should be aggressive in their negotiations. Any PBM contract that is 18 to 24 months old should be reviewed for pricing competitiveness as well as up-to-date contractual language.”

Employers should negotiate aggressively
with their pharmacy benefit managers.

Contraceptive Coverage Options

Survey participants were divided over the Patient Protection and Affordable Care Act's (PPACA) mandate to offer contraceptive products at no cost to plan participants. Their responses:

  • 27 percent plan to cover only generic contraceptives and brands without a generic equivalent at $0 co-pay and cover others at the brand drug co-pay level.
  • 25 percent plan to cover only generic contraceptives at $0 co-pay and cover others at the brand drug co-pay level unless deemed medically necessary.
  • 25 percent plan to cover all prescription contraceptives at $0 co-pay.

While the majority of respondents cover immunizations under their medical benefit only, approximately 20 percent offer this coverage under both their medical and pharmacy benefit.

Managing Specialty Drugs

Specialty medications used to treat chronic catastrophic illnesses, such as multiple sclerosis and an array of cancers, typically are used by only 1 percent or less of covered employees, but they represent 20 percent or more of pharmacy plan costs. These drugs can cost upward of $75,000 per year per course of treatment.

Despite the high cost of specialty medications, more than 30 percent of respondents did not know the portion of overall drug spending attributed to them.

To manage specialty-drug costs, 67 percent of respondents have established utilization management programs, and 55 percent use step-therapy protocols, up from 45 percent and 34 percent, respectively, in the 2011 survey. This indicates that more plan sponsors recognize the need to manage these therapies whenever possible.

Step therapy requires patients to start treatment with a lower-cost drug, usually a generic, and move to brand-name or specialty drugs only if the medication at the previous step doesn’t work. Utilization management programs perform screenings—often as the claim is entered at the pharmacy—to ensure that prescribed drugs are appropriate, medically necessary and not likely to result in adverse medical consequences, including those caused by interactions between drugs or improper dosage.

Dropping Retiree Coverage

Only 48 percent of respondents offered prescription drug plans to retirees who are Medicare-eligible (generally, those over age 65), the survey found. Of these respondents, 55 percent intend to continue this benefit, down from 75 percent in 2011.

“Employers have options for controlling prescription drug costs for Medicare-eligible participants,” said Burns. “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 a group waiver plan to take advantage of additional subsidies” available under the PPACA.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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