As employers look even more closely at managing health care costs, keeping close tabs on prescription drug costs is front of mind among benefit managers. In particular, companies are looking to partnerships with pharmacy benefit managers to keeping drug cost increases in the single digits.
Accordingly, some benefits analysts and executives advise employers to not only push for explicit contractual language on pass-through pricing, but also to support drug benefit designs that focus on multi-tiered formularies, innovative cost sharing and generic drug utilization.
"Dealing with a PBM is not really about being a good or bad thing, but about clearly defining what the deal is in a way that you can communicate to the stakeholders in your organization," said John R. Adler, national practice leader at Wisconsin-based TRICAST, Inc, a firm that manages pharmacy benefit risks.
Seeking administrative and drug transparency
For Adler, drug pricing transparency means "I am going to tell you I am making money, while pass-through pricing says I am going to give you whatever I am buying the drugs for and you will receive the same pricing,'" he explained at a session on selecting a PBM during the International Foundation of Employee Benefit Plans' annual conference.
He acknowledged there are some fully transparent PBMs who provide clients with the precise pricing of drug costs for retail, mail-order and manufacturer revenue. Adler warned employers that there are variations of pass-through pricing.
For example, some PBMs might withhold mail-order and price that traditionally, "while retail and manufacturer revenue, otherwise known as rebates, will be included in the pass-through pricing," he added.
Granted, much attention has been paid to drug pricing transparency, but transparency with administrative fees and services is equally important, experts remind.
For instance, before employers sign on the dotted line, they should "know how many other clients the PBM pharmacist is working with," Susan E. Larkin, senior vice president at Brokerage Professionals, a subsidiary of Pennsylvania-based consulting firm Gallagher Benefits Services, Inc., told IFEBP attendees.
"If the pharmacist has numerous clients, then you are probably not going to get the individual attention you want," Larkin explained. Benefit executives need to be sure they are comfortable with the pharmacist's workload.
Moreover, when negotiating with PBMs, she urged employers to find out whether they have to pay separately for concurrent and retrospective drug utilization reviews, identification cards, member packets and disease management programs.
PBMs and employers will agree that at the end of the day it's about lower drug costs and customer satisfaction.
Last November, the Pharmacy Benefit Management Institute issued a report showing a strong correlation between transparency and employer satisfaction. In it, employers who are "extremely satisfied" with the financial transparency of their PBM relationship gave their PBMs an average overall service and performance rating of 8.8 on a 10-point scale, with 10 being the highest rating.
Conversely, employers who are "somewhat satisfied" with financial transparency scored their PBMs an average performance rating of 7.9, whereas respondents who are "somewhat dissatisfied" or "extremely dissatisfied" with financial transparency rated their PBM's performance at 7.5 and 5.9 respectively, reports PBMI, an Arizona-based educational group focusing on PBM issues.
The survey questioned more than 440 employers representing 15.4 million beneficiaries.
The findings "reinforce that the way PBMs conduct business does impact employer satisfaction with their services," says Dana H. Felthouse, president of PBMI. The institute reports employers saw on average a 6.9% increase in drug costs, a 0.6% drop from 2006.
Promoting generic drugs
Virginia-based Landmark Communications recently teamed up with Cigna Pharmacy Management to redesign the prescription drug benefit. Under the new 2006 design, the company witnessed a generic utilization rate of 57%, and that number is estimated to reach 63% by the end of 2007.
In 2004, the privately held media outfit had a 12% drug trend increase; a year later, it jumped to 14%. Landmark also had annual drug spending of $4.5-to-$6 million. Back then, its generic utilization percentage was 48% in 2004 and 51% in 2005.
Kathleen Thomas, director of benefits at the company, told attendees at EBN's 20th annual Benefits Management Forum & Expo that the organization wanted to implement a new prescription drug benefit with minimal employee disruption that would not negatively influence the company culture.
In 2006, Virginia-based Landmark Communications reduced copayments from $10 to $5 for retail generic drugs and from $25 to $10 for mail-order drugs. In addition, the company increased coinsurance from 20% to 25% for preferred brand drugs and from 40% to 50% for non-preferred brand drugs.
"We knew we had to use several different avenues to communicate changes to our employees during the transition. Naturally, we promoted the more positive aspect of the change, which included lower co-payments on generic drugs," she said.
Overall, the company saved $500,000 and reduced double-digit pharmacy trends to 3.7%. Part of the savings included $15,000 from an early-refill management program and $18,000 from a generic conversion program. Design changes also included clinical management programs and Web-based drug comparison and pricing tools.
"We knew that every member was not going to choose a generic drug, so we included brand-name drugs where the patents were about to expire," said Erik Fiedler, vice president of account management at Cigna Pharmacy Management. "It's a great success story of reducing prescription drug costs without putting on tight management controls to the members. It was achieved simply by plan design and communication."
Chandra Matthews, director of benefits at Tennessee-based Dollar General Corp., a national retailing chain, said, "We wanted people to really think about their pharmacy decisions as being separate from their medical decisions."
The company hired Buck Consultants to help it revise its prescription drug offering. In 2003, Dollar General had a 26% drug trend. Between 2004 and 2005, the company introduced a deductible for brand-name prescriptions only, moved to a mandatory generic program and replaced copayments with coinsurance
Further, Dollar General carved out its prescription drug benefit and hired a pharmacy benefit manager, EHS/PharmaCare, which provided robust clinical resources and actively managed the pharmacy program. The PBM provided detailed and timely reporting information and offered transparent pricing, including disclosure of rebates.
In 2004, Dollar General had a generic utilization rate of 52.1%; the number was projected to reach 66.6% by the end of 2007.
