Conscientious business owners want their employees to get the care they deserve in order to live full, healthy, and productive lives. But, as you might have noticed, benefit costs continue to keep increasing, which makes providing these benefits more challenging.
This increase, materially driven by the expanding specialty drug market, has made understanding the complexities of the pharmaceutical industry a must for business owners. And, as a result, it has also heightened the value of working with a Certified Pharmacy Benefits Specialist (CPBS).
To help you gain a better understanding of the current employee benefits landscape, below, we’ll discuss:
- Why health insurance costs are rising for businesses.
- The role of Pharmacy Benefit Managers (PBMs) and drug companies in the pharmaceutical ecosystem.
- What is a Certified Pharmacy Benefits Specialist (CPBS)?
- How a CPBS can help you keep rising drug spending in check.
The Reason for Rising Health Insurance and Employee Benefits Cost
Several factors have influenced the recent surge in healthcare plan costs, but none more so than the increased prevalence and surging cost of specialty drugs in prescription drug benefits plans.
What are Prescription Drug Benefits?
Prescription drug benefits (a.k.a. Pharmacy Benefits plan or Pharmacy Benefits Management plan) are an essential component of an employee benefits program that provides coverage for prescription medications, including both generic and brand-name options. The increase of drug benefits cost increased your overall employee benefits plan costs.
What are Specialty Drugs?
Although there is no health insurance industry standard definition for specialty drugs, generally speaking, they are high-cost prescription medications used to treat complex, chronic conditions that typically require some form of special handling or professional administration (injection, infusions, etc.).
Some brand-name specialty drugs you may recognize are:
- Stelara: Treats psoriasis and Crohn’s disease.
- Humira: Treats rheumatoid arthritis, Crohn’s disease, and psoriasis.
- Otezla: Treats psoriasis and psoriatic arthritis.
The Proliferation of Specialty Drugs
Prescription drugs represent the fastest-growing component of claim expenses under health plans. This is in part due to the rising costs of the drugs themselves but also because of increased demand.
While in the past specialty drugs were mainly used to treat rare illnesses, in recent years, many new prescription drugs have hit the market that are effective at treating more common conditions such as rheumatoid arthritis, Crohn’s disease, and diabetes. This has led to specialty drugs becoming extremely commonplace.
Because these drugs are potent and effective, doctors have started prescribing them for off-label uses. Off-label use refers to the practice of using an FDA-approved medication for purposes not explicitly approved by the FDA. And while off-label prescribing is legal and can be beneficial for patients, it also means that more people than ever before are using these costly medications.
Also, since these drugs have been found effective during off-label uses, manufacturers have been increasingly seeking and receiving approval from FDA for these drugs to be prescribed for additional illnesses beyond off-label use. This further expands the consumption of these drugs driving up your employee benefits costs.
The result is a staggering increase in the impact of specialty drug prices on employee benefits cost. Five years ago, industry insiders predicted that at some point in the future, specialty drugs might be around 50% of the average pharmacy spend for an employer. Today, we have reached that point.
The Role of Pharmacy Benefit Managers (PBMs) and Pharmaceutical Companies
Beyond the cost of the drugs and their popularity, the traditional structure and supply-chain of the drug industry has been well-known to ambiguous, which has consistently been driving up drug costs for employee benefits programs.
The central players in these negotiations are the drug manufacturers and entities known as Pharmacy Benefit Managers (PBMs).
What is a PBM?
A Pharmacy Benefit Manager (PBM) is a company that designs and acts as a third-party administrator of prescription drug programs for health plans. PBMs play a vital role in the healthcare ecosystem by negotiating the price of drugs with the drug manufacturers, manage the list of covered medications (known as formularies), and process prescription drug claims. PBMs play a crucial role in managing prescription benefits, which include coverage for a wide range of medications.
The three major PBMs in the pharmaceutical industry are:
- CVS Caremark
- Express Scripts
- Optum
A Breakdown of PBM Profits
The most transparent way PBMs make money is by charging administrative fees for the services outlined above. That said, PBMs also generate revenue from spread pricing, which can and often increases your costs.
Spread Pricing: In their dealings with drug manufacturers, PBMs often negotiate discounts and rebates that help lower the costs of expensive medications. However, many PBMs do not pass along the full extent of these savings to your employee benefits plan or employees. Instead, they keep a portion of these discounts and rebates for themselves.
To help clarify this method, here’s an example of how this process might play out:
Negotiation with Manufacturers: A PBM negotiates with a drug manufacturer for specialty medication X. The manufacturer’s list price is $1,000. The manufacturer agrees to provide a $200 rebate per drug to incentivize the PBM to include it on its formulary (recommended covered drugs list).
Rebate and Discount Spread Pricing: The PBM receives the $200 rebate from the manufacturer but only passes $150 of this rebate to your pharmacy plan, keeping $50 as profit.
Prescription Drug Benefit Plan Billing: The PBM includes specialty drug X on its formulary and charges your pharmacy plan $1,000 for each prescription of this medication.
Pharmacy Reimbursement: When a patient gets the medication, the pharmacy dispenses it and submits a claim to the PBM. The PBM reimburses the pharmacy $900 for the drug.
Spread Profit: The PBM keeps the spread ($100 difference) between the $1,000 charged to the insurance plan and the $900 reimbursed to the pharmacy as profit.
So, your pharmacy plan ends up being charged for $850 per specialty drug after rebate, while:
- Your employee’s cost is often nearly free
- Plan charged $1,000 for drug and pharmacy is reimbursed $900 ($100 profit to PBM)
- Manufacturer receives $800 after $200 rebate; PBM passes on $150 ($50 profit to PBM)
- PBM makes $150 in revenue
Issues Around Traditional PBM Business Practices
In traditional models, PBMs profit from spread pricing and rebates. Although commonplace, many have argued including the US government that this financial model is flawed in a couple of areas:
Formulary Placement: Drug manufacturers offer rebates and discounts to PBMs as incentives to include their medications on the PBMs’ formularies. Because of this, PBMs might prioritize these drugs not necessarily based on clinical effectiveness but on the financial benefits they receive. There should not be a financial incentive, rather what medication is the most effective.
Prior Authorization: PBMs are also responsible for the prior authorization process, where they decide whether to approve or deny your employees’ use of expensive specialty medications. Since PBMs can turn a larger profit from the spread and rebates associated with high-cost drugs, they have a financial incentive to approve them. While not a given, this can create a conflict of interest, as the PBM’s financial gain can influence their decision-making, potentially increasing your company’s drug spend unnecessarily because more cost-effective generic drugs or more clinically appropriate treatments are not being prioritized.
While this model is not inherently bad, it behooves your company to be educated about the prescription drug model and negotiate more favorable contract terms with good cost savings and net costs.
Transparent Pricing Models
Misgivings about this financial model have caused the industry to evolve as well as the US government to push for PBM reform. In recent years, transparent pricing models have been introduced by various entities, such as Mark Cuban’s Cost Plus Drug Company and CVS Health’s CostVantage plan in response to these concerns.
Generally speaking, a transparent PBM model passes through actual medication costs to you, charging only an administrative fee.
Even if you are selecting a transparent model, you should still review their claims thoroughly to negotiate the best pharmacy contract for your company.
How a Certified Pharmacy Benefits Specialist (CPBS) Can Be a Solution for Your Business
Sorting through all these various complexities can be daunting for you to handle on your own. Securing favorable terms and dissecting the various pricing models requires specialized expertise. This is where working with a CPBS can help.
What is a CPBS?
Certified Pharmacy Benefits Specialist (CPBS) designation is awarded to individuals who have demonstrated advanced knowledge and expertise in the management of prescription drug benefits. A CPBS can help employers navigate and understand the complexities of prescription drug benefits.
How a CPBS Can Help Keep Your Cost at Bay
A CPBS can help you mitigate rising specialty drug costs in a number of ways:
Negotiating Contracts
Clear and Detailed Terms: Prescription Drug Benefit contracts are dense and filled with health insurers industry jargon. To make matters worse, since the terms for “generic” or “specialty” drugs are loosely defined, the meaning of these terms can shift depending on the context they are presented in. A CPBS can help clarify these terms and push for uniform definitions to avoid ambiguities, and unnecessary future potential cost increases.
Rebate and Discount Clarity: Similarly, with clear contract terms your CPBS can help identify hidden rebates and push to make sure you receive or are at least made aware of all the manufacturer revenue being received by the PBM.
Monitoring the Contract and Performance
Audits and Reviews: CPBS can push for audit rights, which allows you to verify that your PBM adheres to the terms of your contract. They can also then help verify that the PBM is delivering on those promises.
Performance Metrics: A CPBS can establish performance metrics to evaluate the PBM’s service. This includes tracking key indicators, such as claim approval rates, turnaround times, and member satisfaction.
Assessing the Formulary and Prior Authorizations
Pushing for a More Cost-Effective Formulary: A CPBS can help influence the PBM to cover medications that can treat a condition at a lower cost by pushing them to also include generic and other more affordable yet highly effective drugs on the list of available covered prescriptions (not just expensive specialty drugs). This way, if your employees have access to lower cost drugs, your costs will be lower as well.
Outsource Prior Authorizations: If prior authorizations become an issue, a CPBS can attempt to outsource this decision-making to a more neutral third party who might be stricter about the medical criteria needed to approve specialty medications for your employees.
Align PBMs with Company Culture: A CPBS can help you select the PBM that matches best with your philosophy and goals for your Employee Benefits programs. Whether that is to maximize rebates, minimize net costs, or improve member health outcomes, they can direct you toward a PBM whose philosophy on formularies and prior authorizations more closely matches your and your employees’ expectations.
If you want to control your business’ healthcare plan costs, you need to focus your energy on the areas where costs are rising the most. And today, that is the specialty drug market. Working with a CPBS is like having a lawyer, they can help you better sort through the complex details of your pharmacy program and advocate for your company within the complex industry, ultimately leading to better healthcare outcomes and reduced costs.
If you want a CPBS to assess your current Employee Benefits plan including your prescription drug benefits contract to identify potential cost savings opportunities, please don’t hesitate to contact Scott Mathieu at smathieu@hilbgroup.com.