As medical plan premiums increase and employees are prescribed high-cost specialty drugs, which normally treat complex or rare chronic conditions, employers are left wondering about solutions to the rising costs of prescription drugs in their health plans.
In order to control high drug costs for your business, first you need to understand how new drugs are priced and when they are covered by insurance carriers before they become available on the preferred drug list.
How Prices Are Determined for New Specialty Drugs
Drug pricing is set by the pharmaceutical industry, so a medical insurance carrier can’t control the actual cost of a drug. As new expensive drugs come to market to treat a health condition, manufacturers for previously existing drugs may raise their prices to the new market level. Since this may seem like an unfair and unchecked pricing process, working with a Pharmacy Benefit Manager (PBM) can help.
PBMs are companies that manage prescription drug benefits on behalf of health insurers or other payers by negotiating with drug manufacturers and pharmacies to control drug spending. PBMs develop and maintain preferred drug lists, or formularies, on behalf of health insurers, use their purchasing power to negotiate rebates and discounts from drug manufacturers, and contract directly with pharmacies to participate in their network.
To keep drug costs manageable for your company, PBMs may look to independent research organizations, such as the Institute for Clinical and Economic Review (ICER), for recommendations when establishing their formulary and negotiating their PBM pricing with pharmaceutical companies for discounts and rebates.
How Insurance Companies Decide Whether to Cover a New Specialty Drug That Has Just Been FDA-Approved and Provide Benefits Before It’s Added to the Formulary
While drugs are coming to market with less data than in the past (meaning research studies of a few hundred patients instead of thousands of patients), most new drugs are typically subject to a six-month hold before going on a PBM formulary. In order to understand these new drugs before they are added to their formularies, medical insurance carriers and PBMs use a Pharmacy and Therapeutics (P&T) Committee for direction, which can be comprised of clinicians, pharmacists, and physicians. The P&T Committee reviews the attributes, safety, and effectiveness of new drugs as they come to market and advise carriers on how to handle coverage. So, while insurance carriers may not have direct influence over the actual cost of a new drug, they can determine based on P&T Committee recommendations whether they will make the new high–cost medication available to your employees before the drug is made available on the PBM formulary.
During this evaluation period, your employees wanting to obtain these new specialty drugs through your health plan can only do so in rare circumstances and through a special exemption involving an authorization and a medical necessity process because for instance there’s not another drug for the medical condition. If the request is approved by your health plan, the plan will pay its share of the cost and the member will be responsible for their share based on the deductibles, coinsurance, and/or copays outlined in your benefits.
Solutions to the Rising Costs of Prescription Drugs for Your Business
If you have employees taking high-cost medications, the insurance companies will weigh that in your claims experience, which can have a negative effect on your overall health plan cost. However, there are a few things you can do to help keep your cost down:
- If you have a self-insured benefit plan, you have greater flexibility in negotiating with the PBM.
- But if you’re in a fully-insured contract and experience-rated (costs are based on previous years’ claims), you can work with a PBM or your insurance carrier to make adjustments as your plan allows using the following solutions to the rising costs of prescription drugs:
- Make sure your pharmacy contracts in your health plan include waiting periods before covering new drugs for any employee. This allows the P&T Committee to review the efficacy of the medication and establish guidelines and policies for its use, including whether to include it on their formulary. Although your employees will have to pay out of pocket for new specialty drugs during this period, in some circumstances as mentioned above, some of them will still be approved to obtain a new drug that will be covered by insurance. But this approach will significantly curb costs for your business by discouraging employees wanting new more expensive drugs that may already have a cheaper alternative on the market.
- Make sure your stop loss insurance policy, or pooling agreement, includes coverage for prescription drugs. In the past, prescription drug costs were a small percentage of the overall cost of a health plan and were sometimes excluded under the stop loss or pooling arrangement. Under today’s health plans, prescription drug costs can equal 25% to 40% of the total claim expenses making them one of the highest components of health plan expenses.
- If your business has a self-funded plan, you should strongly consider including No New Laser (NNL) protection and Guaranteed Renewal with Rate Cap (GRRC) in your stop loss contracts. The NNL contract ensures that your stop loss carrier won’t single-out an employee to a higher specific (individual) deductible amount or exclude them from the contract because they are taking a high–cost medication. The GRRC provision limits the rate increase the stop loss carrier can apply at time of renewal. With the development of newer drugs costing hundreds of thousands of dollars, the NNL combined with GRRC provides your business financial protections in the event an employee needs a high–cost medication for ongoing treatment of their health condition.
- While it is an extreme solution, if your business has a self-insured plan, you can negotiate with the PBM and/or a Third Party Administrator (TPA) to exclude specific high–cost medications to keep your costs down. Just keep in mind that this may prevent your employees from getting the drug they need covered by insurance.
- Another alternative is to find a third party (i.e. a nurse or clinician) who can obtain a clinical evaluation, which would allow someone taking a high-cost drug to be covered through some type of manufacturer program (for instance copay assistance). By doing this, you carve that medication out of your plan, but the manufacturer is still going to provide the medication to the individual at a lower cost.
Unfortunately, there is no magic solution for the rising costs of prescription drugs issue, but it’s important to make sure you’re strategizing with your benefits advisor to address the potential issues for these situations NOW, not after a one of your employees is prescribed a high-cost specialty drug.
If you’d like our CPBS experts to look at your benefit plan and pharmacy contract to identify potential cost-savings, request your free PBM contract review. We’ll help you figure out how to reduce pharmaceutical costs for your company. Should you have questions about the pharmacy dilemma we’re facing in the current market, contact me at epaulsen@psafinancial.com.
