Employers and Pharmacy Benefit Managers (PBMs) will need to embrace new, innovative approaches to pharmacy benefit management in order to offset future marketplace cost drivers, such as increased usage of specialty drugs, according to recent findings from Lockton’s National Pharmacy Practice.
Specialty Drugs On The Rise
A succession of high-priced specialty drugs flooded the Rx marketplace in 2014, dominating the headlines. Introduced by pharmaceutical giants such as Gilead and AbbVie, the new crop of revolutionary specialty drugs are able to cure rather than treat certain complex diseases and health conditions, such as Hepatitis C. Many new drugs in development are specialty drugs, which are different from traditional oral solids or powders formed into a pill form, relying rather on infused or injected medications created out of living cultures and complex sets of amino acids or proteins.
Hepatitis C drugs Sovaldi and Harvoni (both Gilead) and Viekira Pak (AbbVie) run $84,000 to $100,000 per treatment and, depending on the patient’s genetic makeup, can provide a cure rate of 90%-plus, for example. A number of physician practices are waiting so they can treat patients with these new specialty drugs that provide better outcomes than previous products. What’s more, employers should expect specialty drug utilization, like the Hep C drugs, to increase their pharmacy costs as more patients are diagnosed and treated.
Holding PBMs Accountable
Employers should make sure PBMs are performing prior authorizations on Hep C and other specialty drugs because the drug’s efficacy depends very much on the patient’s genotype. If the genotypes are not being tested the drugs could be a wasted spend. Additionally, large PBMs are excluding one manufacturer’s product in exchange for coverage on another, so employers will need to hold PBMs accountable to lower prices and better management, according to Pharmacy Analytics Consultant Brandon Crosby from Lockton’s National Pharmacy Practice.
Generic Drug Inflation
Some pharmaceutical manufacturers are choosing to exit the production of certain generic drugs due to low profitability, and some chains are removing certain generics from their low-cost drug lists: Walmart removed doxycycline hyclate and tetracycline, for example. Generic and brand manufacturers are benefiting from the economic inflation that ensues when product supplier numbers drop. What’s more, some PBMs/contracts exclude certain generics—such as generics in short-supply—from generic discount guarantees, and these contract exclusions can hurt plan sponsors more than ever, says Crosby.
Proactive Pharmacy RFP Procurement
Employers should initiate an RFP procurement for the Pharmacy Benefit as soon as possible and continue to hold their PBMs accountable in this unstable market. This will ensure that PBMs are offering a set of services tailored to the employer’s strategic benefit plan, which will become increasingly important in the future. Proactive RFPs ensure employers are getting the best price available: They establish auditable discount guarantees; auditable rebate guarantees; auditable dispensing fee guarantees; auditable administration fee guarantees; and contractual language that supports the guarantees. The best pharmacy RFPs also measure financial impact, member disruption, and pharmacy network disruption, says Crosby.
“Without these terms you’re flying blind and PBMs can deliver whatever pricing they like—and this analysis can be performed in the middle of a two- or three-year PBM agreement,” he adds.
Metrics to Manage the Rx Benefit
Crosby concludes: “Measuring the PBM’s pricing performance and audit reconciliation results on an annual basis is critical to ensure that the value of the deal is actually delivered. There are many ways for a PBM to under-deliver on pricing. Lockton performed 44 annual audits in 2014, and 39 of them produced refund checks back to the plan sponsor. The total underperformance paid out to our clients in 2014 was $2,800,000. Quarterly pricing checks maintain a focus on the PBM, who tend to perform better when they know they’re being watched. This is a newer idea in PBM, but can make a big difference for plan sponsor budgets and helps ensure that HDHP plans are fair to the members and the plan. We’ve been amazed at the amount of pharmacy spend left on the table due to less-than-best-in-class PBM discounts, fees, rebates, contract terms and inability to enforce unmet performance guarantees.”
Free Rx Check-Up
Looking for strategic, vendor-agnostic support for your pharmacy benefit management function? We can help: Lockton Companies now has a free Rx Benefit Check-Up for self-funded employers. Contact me today at RRuotolo@Lockton.com or (646) 572-3962 to set an appointment with our National Pharmacy Analytics Practice and actuaries who support our core benefit teams in this area.