Don’t Let Pharmacy Spend Bust Your Benefits Budget: How to Optimize Your Plan
In the dynamic world of employee benefits, offering a competitive pharmacy benefit can help employers attract and retain great talent and increase employee engagement and satisfaction. However, the cost of offering a robust, sustainable benefit is rising at an unsustainable pace. Consider that healthcare spending is increasing at twice the rate of inflation – at an estimated rate of 7.1% annually between 2022 and 2027 – and pharmacy benefits are its fastest-growing component. Prescription drug spending increased 9.9% in 2023 alone. More than half of all drug spending is now on specialty medications, with high-cost drugs continually entering the market.
Targeted pharmacy plan design for unique plan goals
Each pharmacy benefits plan’s objectives and member characteristics – such as location and demographics – are unique. This means that the best pharmacy benefits solution for each plan varies depending on its goals.
The offerings available to employers and HR teams vary depending on the pharmacy benefits manager (PBM), whether the “Big Three,” smaller regional organizations, or so-called transparent providers. However, often, none of these offerings align entirely with a plan’s goals. The largest PBMs have purchasing power and can help lower costs. However, their offerings are not always aligned with a plan’s objectives, and their often-opaque business practices, including back-door deals with manufacturers, have come under increasing scrutiny in recent months.
What is pharmacy benefits optimization
Pharmacy benefits optimization is a comprehensive approach to managing an employer’s pharmacy spend to the lowest net cost while delivering superior health outcomes and an exceptional member service experience. It goes beyond just negotiating drug discounts and rebates. It focuses on strategies that address contract terms and guarantees, formulary and utilization management – particularly for high-cost specialty medications – and clinical interventions.
It offers a pharmacy benefit arrangement that delivers a clear contract aligned with the plan’s goals, including competitive rates and rebates guaranteed at the individual client level to help them achieve their true north, lowest net cost.
When evaluating if working with a pharmacy benefits optimizer like RxBenefits is right for your plan, there are some key considerations.
Pricing Transparency and Audit Rights
PBM contracts can include hidden fees or charges that may not be obvious, such as data management fees, member communication fees, and other concealed markups. The PBO model allows each employer to audit their individual plan contract, ensuring that the PBM meets its obligations and provides accurate information providing transparency and accountability.
Contract Terms and Guarantees
The terms of a contract can significantly impact overall costs and savings opportunities. Pricing offers can be manipulated to make a PBM’s proposal appear better on a spreadsheet than it really is. It is important to ensure all contract terms, including rates, rebates, and guarantees, are clear and transparent. For example, if a contract guarantees the employer a certain percentage of rebates on generic or brand-name drug spending, it is crucial to understand how those terms are defined. Such terms and definitions – for instance, what is considered a single-source generic or what brand of insulin is covered – determine which claims will qualify for rebates and which will be excluded.
PBM rebate collection practices, including the frequency – monthly, quarterly or annually – can impact cash flow and budget planning. RxBenefits offers its customers transparent rebate guarantees for brand drugs and specialty medications at a client level.
Plan Design and Formulary Management
Plan design plays a vital role in optimizing pharmacy benefits. PBOs help plan sponsors carefully consider their plan design, including copayments and deductibles, to ensure they align with their overall cost management goals. For example, conducting an in-depth plan design analysis can result in multiple strategies to maximize savings, including narrowing the formulary and reviewing high dollar claims with added scrutiny.
Well-managed formularies – lists of prescription drugs covered by the plan – is a cornerstone of pharmacy benefits optimization because they help balance access and cost by ensuring the right member is receiving the right drug for the right price. PBMs often have incentives to place higher-cost medications on a formulary, such as rebates or discounts from drug manufacturers. However, these drugs may not always be the most clinically effective or cost-efficient option for patients. PBOs can negotiate with the PBM, on a plan’s behalf, to remove low clinical-value drugs from the formulary and replace them with equally effective, lower-cost alternatives so that it is optimized for cost savings while ensuring member access.
Diligent Cost Management for Specialty Drugs and Complex Conditions
Today, specialty drugs – high-cost medications used to treat complex, chronic conditions represent about 54% of a typical plan’s total drug spend, even though they only account for ~2%-3% of all prescriptions. PBMs may be profiting from filling specialty drug prescriptions in a variety of ways including taking spread – the difference between what the plan sponsor pays the PBM and what the PBM pays the pharmacy – and retaining some or all, manufacturer rebates. The leading PBMs all own specialty pharmacies, and by requiring that patients use them exclusively, they can capture the profit margin from dispensing the medication. This conflict of interest can lead to higher-than-appropriate prior authorization (PA) approval rates and, in turn, higher-than-necessary costs for plan sponsors and their employees. PBOs like RxBenefits employ clinical pharmacists who perform independent, and unbiased PA reviews to combat the PBMs’ potential conflict of interest and maximize plan savings.
When patients with complex medical conditions are prescribed multi-drug regimens, having an independent pharmacist review those claims for therapy duplication, potential drug interactions, and dosing can lead to potential savings while improving patient outcomes. RxBenefits’ PBO model is a peer-review process where independent pharmacists work collaboratively – including with a Condition Specialist or a licensed medical doctor specializing in specific diseases when needed – with the goal of improving clinical efficacy and lowering costs.
Cost Management Strategies for Emerging Trends
One class of non-specialty drugs that has quickly become a significant cost driver for plan sponsors is GLP-1s. Approved for the treatment of Type 2 diabetes, GLP-1s are also highly effective in weight loss and have seen a massive spike in utilization because of off-label prescribing to treat obesity. They now account for more than $32 billion in annual spend. With PBMs often profiting from the difference between what the plan sponsor pays and what the pharmacy is paid, employers need innovative cost management strategies to manage the impact of this high-cost class of drugs on their plan costs. Their automated processes also mean prescriptions for expensive medications that may be for off-label use fall through the cracks.
Last year, RxBenefits implemented new PA requirements for GLP-1 drugs, helping clients save more than $37 million in 2023 alone. In just the first half of 2024, client savings have realized more than $41 million before rebates.
Why Optimize
PBOs offer the expertise and personalized care – including clinical management led by independent pharmacists – that goes beyond helping lower costs to optimize pharmacy benefits to enhance the overall health, well-being, and satisfaction of employees while enabling employers to offer sustainable, affordable benefits.
