Navigating employee benefits is more complicated than ever before. It’s also more important than ever for employers to find new and competitive ways to recruit and retain, but this effort has been hindered by skyrocketing benefit cost increases. And many aren’t aware pharmacy benefits is where they may be feeling the most strain. Medications are accelerating overall healthcare spend more than any other factor—and the healthcare line item is bracing for a 7.1% increase per year, for the next five years. So how can you create a benefits package that will attract employers while still managing to your bottom line?
One method to deflate this drugflation is to tap into a pharmacy partner who can collectively leverage buying power like a Fortune 10 company to achieve meaningful contracting gains in rates and rebates. Self-funded employer groups have two main types of aggregate purchasing arrangements to consider:
- Coalitions, or group purchasing organizations (GPOs), that can be owned and operated by integrated carriers, plan sponsors, employers, or other industry stakeholders, which provide contracts and cost savings for pharmacy benefits but hand clinical and service management components to a third party who have their own best interests in mind.
- Independent experts, such as a pharmacy benefits optimizer (PBO), who provide contracts, cost savings, and comprehensive pharmacy benefit management, including PharmD-led clinical reviews and personalized member services.
For smaller or mid-size employers, this type of arrangement can be a game changer. However, not all group purchasing power will offer the same value:
Cost savings vs. lowest net cost
As more specialty treatments with hefty price tags flood the market, in conjunction with the increase in chronic conditions among members, employers are in for major sticker shock on their claims. Both a PBO and a coalition will offer a solution to combat this rising pharmacy spend with better-negotiated pricing.
However, pricing consideration alone is not enough to manage pharmacy benefits, and cost savings is not the same as a true lowest net cost.
Aside from first-year cost savings, over time coalition contracts may become less appealing as specialty drug costs and usage skyrocket. A coalition’s power stops at contracting, which doesn’t address other considerations like risk mitigation, medical necessity reviews, stop-loss coverage, or member health and safety. This limits overall savings to only what is put on paper at the start of a term – one that could last up to three years and have hidden requirements and conditions on coverage. A single employee with one high-cost condition and treatment, without the other measures added, will leave employers on the hook for paying out repeated budget-busting claims. In fact, in most companies, just 2% of members account for 50% of spend.
A PBO will also have cost savings in the first contract (20-25% on average), but will look beyond achieving first-year savings to consider how an employee population and medications may change over time – and what the employer group may face if left unprotected from changing formularies and unchecked costly claims.
Coalitions may be handing your contract to a gatekeeper
While coalitions use their collective membership to unlock better initial contracts, the actual management of the plan goes to a PBM. The PBM will decide how the plan is managed, including:
- Which scripts get approved, aligned to what’s in the PBM’s best interest vs. the member’s?
- Which clients get which levels of support, based on the PBM’s tiered structure, leaving smaller companies with a great first-year contract but frustrating service on the plan.
A PBO will leverage its own buying power to unlock a better contract but adds the ability to reevaluate on a yearly basis. In addition, the PBO offers:
- Clinical programs aligned to an employer’s plan, such as choosing not to cover pricey Ozempic® for off-label use and preventing any misuse through ongoing high-cost claim reviews.
- Comprehensive support models for employers and members, using a fully U.S.-based team.
A PBO specializes in clinical utilization management
Coalitions hand control, prior authorization, and ongoing reviews to the PBMs to manage, which when aligned to the PBM’s own interests, can incentivize the use of specific medications with a rebate. However, even if an expensive drug comes with a rebate, the money spent on better priced—but still medically unnecessary—treatment is still money driving up plan spend. In addition, the PBM algorithms used to approve scripts will let through more prescriptions, a danger to both the bottom line and a member’s health and safety.
A PBO uses pharmacist-led intervention to review prescriptions for medical necessity and lower cost alternatives. This high-touch clinical review can substantially prevent wasteful spending over the course of a contract. A clinical program can improve plan savings by 5-7% annually, while improving member health and safety at the same time.
The bottom line: PBOs offer employers more than cost savings
For employers who want more from their pharmacy benefit than short-term cost savings, a PBO is the clear choice. With a more holistic approach to benefit design, employers of all types and sizes can get purchasing power and plan oversight, which is more valuable than a contract on its own.
Engaging a pharmacy benefits optimizer is no more disruptive than engaging a coalition— in fact, it provides more support to achieve all your objectives.
