How HR Can Help Control Prescription Drug Costs

Focus on plan design, oversight and communications to rein in ever-rising drug prices.

By Joanne Sammer May 25, 2017
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​Remember when Turing Pharmaceuticals was accused of price gauging in 2015 after it increased the price of Daraprim, which is used to treat AIDS and transplant patients, from $13.50 to $750 per pill? Martin Shkreli, Turing’s CEO, instantaneously became a much-despised symbol of the problem of runaway drug costs and greedy manufacturers. Or do you recall the public outrage that ensued due to the decade-long increase in the price of Mylan’s EpiPen, an autoinjector used to treat severe allergic reactions, from about $90 to more than $600 today?

While sudden price spikes are unusual in the pharmaceutical market, a long and significant trend toward higher costs persists. As a result, prescription medications—and specialty drugs in particular—have become a primary driver of health-related expenditures. In fact, employers in a recent Mercer poll said the top health care issue they want Congress to address is the climbing costs of prescription drugs.

“Prescription drug benefits used to be considered a side cost to overall employee health benefits,” says Hector De La Torre, executive director of the nonprofit Transamerica Center for Health Studies in Los Angeles. Now, they are one of the top three most expensive essential health benefits, right alongside ambulatory patient services and hospitalization.

A closer look at specialty drugs—medications used to treat such serious, complex conditions as cancer and multiple sclerosis—shows why. Their per-unit cost is rising substantially, due in large part to the high cost of research and development. So too is the rate at which they are being prescribed, perhaps because of the prevalence of chronic conditions in the aging U.S. population.

“Costs for specialty pharmaceuticals are increasing 21 percent per year, compared to 4 percent for traditional pharmacy,” says Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington, D.C. And more medications are yet to come. “The specialty drug pipeline is big, and new drugs are coming out fairly quickly—over half of all U.S. Food and Drug Administration (FDA) drug approvals are for specialty drugs.”

Large jumps in the price of pharmaceuticals are not necessarily new. In the past, big cost increases were driven by traditional brand-name blockbuster drugs. However, the spikes were followed by some relief as those products’ patents expired and much cheaper generic versions became available, helping to offset the growing costs of specialty medications.

Unfortunately, few experts expect the same sort of return on generics to continue in the near future. “Most of the savings from those blockbuster generic drugs has now been realized,” says Keith Bruhnsen, assistant director of benefit administration for the University of Michigan.

Inefficiencies and problems in the specialty market may also exacerbate price spikes. “The trend in pharmaceuticals spend is frankly not acceptable; it is higher than it should be,” says Michael Thompson, president of the National Alliance of Healthcare Purchaser Coalitions in Washington, D.C. “There is concern that the market itself is dysfunctional, with a lack of transparency and high variation in prices” depending on where the drug is purchased and administered.

HR leaders at companies that sponsor employee health plans may feel helpless in the face of such daunting market trends, but there are some proven strategies you can pursue to control the cost of prescription drugs.

How to Cope

​Managing the cost of prescription programs is challenging and requires specialized expertise. Many larger employers opt to separate these programs from the overall health plan to enable pharmacy benefit managers (PBMs) or other consultants to closely monitor and manage expenses. A growing number of companies are further carving out their specialty drug programs so that they can be handled under the aegis of specialty pharmacies, specialized PBMs and other vendors.

HR professionals from smaller organizations that contract with insurance companies to operate their health plans, including prescription benefits, have fewer options. But they can still apply pressure to carriers by asking them what steps they are taking to hold down expenses. Another way to gain more leverage in the pharmaceutical marketplace is by joining a regional health care purchasing coalition—possibly leading to opportunities to carve out those benefits for closer management.

Specialty Drugs—A Closer Look

Specialty pharmaceuticals, including those derived from living cells or organisms (referred to as “biologics”), are much more complex than traditional prescription drugs, both in their makeup and in how they are administered to the patient. These medications:

  • Often must be injected or infused in a health care setting, whether at a doctor’s office, clinic or hospital, with follow-up care and monitoring also necessary.
  • Are used to treat complex, often chronic conditions, including certain types of cancer and multiple sclerosis, for which there are few if any other treatment options.
  • Are expensive—very expensive. A single dose can cost hundreds if not thousands of dollars.

Consider Design Options

​Most benefits administrators have already redesigned their companies’ prescription plans to create financial incentives for employees to choose the least expensive products. A common method for doing that is by offering different levels of coverage for various medications. For example, one tier may provide full payment for generics and drugs for chronic conditions such as diabetes. Similarly, another level for specialty biologic drugs (complex medications that are manufactured in a living system such as a plant or animal cell) could create an incentive for patients to seek out less costly biosimilar treatments by offering a higher level of coverage for them. Biosimilars closely resemble but are not exactly the same as existing FDA-approved biologics, and studies show no meaningful differences between them.

Subsequent tiers would follow, with increasing levels of co-payments or co-insurance based on various factors such as the drug’s proven effectiveness and the nature of the condition being treated. However, it is important to make sure this structure does not become too cumbersome. “Don’t make it too confusing with multiple tiers,” advises Gary Kushner, president of Kushner & Co., an HR and benefits consulting firm in Portage, Mich.

As specialty drugs become more common in all therapy classes, you may be tempted to ask employees to foot a greater portion of the bills for them—perhaps by introducing co-insurance that requires workers to pay a percentage of the prescription cost rather than a flat dollar co-payment.

​But that approach could backfire, experts say. If you pass along those costs, people are less likely to adhere to the prescribed regimen, says Tom Sondergeld, vice president of global benefits and mobility for Walgreens Boots Alliance in Deerfield, Ill. “In those cases, you don’t get the right result,” he explains. Moreover, if the patient’s condition worsens, costs could snowball—and some expenses will likely spill over into the medical plan if additional treatment or hospitalization is required.

[SHRM members only resource: Understanding Specialty Pharmacy Management and Cost Control]

When developing the formulary of what drugs the plan will cover, you’ll need to make some difficult choices. For example, should the plan cover a prescription for human growth hormone for a child whose height is in the 15th percentile for his or her age? “This treatment can cost $12,000 to $15,000 per month for a condition that is not life-threatening,” Kushner says. “It is difficult to know where to draw the line.”

Manage Care

​Traditional pharmaceuticals usually come in the form of a pill, capsule or liquid that is prescribed by a health care provider and that, for the most part, can be taken with little supervision beyond providing basic instructions and information about potential side effects. Specialty pharmaceuticals, on the other hand, are more complicated. They are commonly given via infusions and injections, which can be tricky to administer and may require professional support. Moreover, appropriate follow-up care is needed to determine the drug’s effectiveness and whether the person taking it can adhere to the regimen without experiencing debilitating side effects.

A person’s inability to tolerate a specific medication is a real concern and could be a significant source of waste. That is why the quantities of drugs dispensed should be carefully managed, particularly when someone is filling a prescription for the first time. Work with vendors to reduce the initial order from a 90-day supply to, say, 30 days to minimize expenses in case the medication must be discontinued.

“There is no use paying for a large supply of medication if the patient can’t tolerate it,” says Raymond Brown, clinical pharmacy leader in Mercer’s Minneapolis office.

​Disease management programs can also help steer people to the least costly site to receive specialty drugs. Some providers might want to administer the medication in a hospital setting; a physician’s office or retail clinic might be just as safe and effective but much less expensive.

Keep Tabs on the Plan

​Close management of prescription plans and PBMs is essential. “Manage them tightly, insist on regular reporting, ask questions and don’t trust everything the PBM is telling you,” Sondergeld says. For example, know how manufacturer rebates work. In some cases, these refunds actually drive costs because PBMs push higher utilization of certain products over others to maximize rebates.

‘The longer a PBM can lock you into an agreement, the more that is to their advantage.’

    – Keith Bruhnsen, University of Michigan

When reviewing plan data in aggregate, check for outliers. “You should look for sudden increases in costs for a drug, as well as in the number of prescriptions being filled,” Bruhnsen says. If you spot something worrisome, you may be able to move alternative drugs to preferred status to encourage their use instead of the higher-cost drug. In addition, modifying utilization criteria can limit the situations in which the expensive drug will be covered. When you’re making these types of changes to formularies, it is a good idea to give patients and providers 60 days’ notice so that they can prepare to change to a new drug. This review can also highlight opportunities to steer people toward buying a medication through a lower-cost channel, such as a mail-order or specialty pharmacy rather than a retail chain.

Rework Contracts Regularly

​In the ever-changing pharmacy environment, long-term contracts with PBMs and other vendors are not always in employers’ best interest. “Don’t let vendors push for contracts longer than three to five years,” Sondergeld says. “You also need the ability to check prices against the market, and the contract might forbid that.”

An even shorter cycle might be warranted for PBM contracts. Bruhnsen recommends a maximum of two to three years. “That is critical to get the best discounts,” he says. “The longer a PBM can lock you into an agreement, the more that is to their advantage.” For example, if manufacturers increase their rebates or if retail or specialty pharmacy networks offer better discounts, a long-term contract with set conditions may preclude a plan sponsor from sharing those savings. “Keeping those cycles shorter helps to make sure you are getting the most current pricing,” Bruhnsen says.

Some employers have even begun putting each component of the prescription drug program—retail, mail-order, and specialty pharmacies and plan administration—out for bidding instead of offering the entire program as a single contract. “PBMs don’t like to do that,” Bruhnsen says. “They want a package arrangement” that they can more easily manage to increase revenue and profitability.

​As a general rule, pay close attention to your relationship with PBMs and specialty pharmacies. “Contracts can be opaque and sometimes seeded with incentives that cause the vendor to act counter to the best interest of the health plan and consumers,” Bruhnsen says. “Contracts have so many moving pieces and are so complex that you really need to have a very fine eye to understand all the nuanced ways that vendors are making money on these drugs.” 

Communicate with Employees

​Whatever steps you take to curb costs and manage utilization, make sure you clearly explain them to employees. If you don’t, the chances are significant that your motives will be misunderstood.

“There are fantastic new opportunities to treat diseases and conditions that have not existed before,” Bruhnsen says. “But those opportunities are coming with an enormous cost.” That is why it is so important for employers to educate employees about the need to limit expenses while still providing effective care through strategies like prior authorization, step therapies, and quantity and supply limits. “People need to understand that these programs are not there to deny them access,” he says. And let them know if there is an appeals process that they and their providers can use to argue for the medical necessity of a specific drug.

Also help workers understand that the medications they see advertised on television aren’t necessarily superior to the ones that aren’t. “The goal should be more evidence-based and less marketing-based prescription drug usage or asking for one drug or another,” Kushner says. If patients ask for a specific brand, providers may write a prescription for that drug just to keep them happy. “There is no penalty for doing that,” he says. “Employers need to do a better job of educating employees on the best way to use the prescription drug plan.”

​That’s a message you need to communicate often. “Use a variety of media, traditional and electronic, to come at them from different angles,” says De La Torre. “Give them the tools to make cost-effective decisions” based on appropriate treatment options. For example, when emphasizing the use of generics, cite studies of the effectiveness of these drugs rather than simply stating that the medications are less expensive.

Mind the Big Picture

​While managing prescription drug costs is and will continue to be a critical goal for the next several years at least, plan sponsors must keep their cost-management efforts in line with the larger picture of promoting employee health and well-being. The right medication for the right patient in the right dosage and with the right follow-up care can make a world of difference for an individual with a chronic or acute condition.

That, in turn, can yield benefits to the employer. “If an employee with multiple sclerosis takes a specialty drug and it works, that individual will be a more productive worker and for longer,” Sondergeld says.

At the same time, make sure your company’s prescription drug program is accessible, understandable and affordable for beneficiaries. The last thing you want to do is make it more difficult for workers and their families to get the treatments they need. “The worst outcome is when people take very expensive drugs and don’t adhere to the regimen and don’t get better,” Thompson says. “That is a true waste.”

Joanne Sammer is a New Jersey-based business and financial writer.

Illustration by David Vogin for HR Magazine.

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