Self-funded

The Changing Landscape

In the early part of the decade beginning 2010, employers that self-insured their employee drug benefit were experiencing a relatively calm period. Generic drug prices were flat to declining, lots of brand name blockbuster drugs were ending their patent period and being made available in far less expensive generic form, and specialty medications were a much more modest portion of overall drug spend. While brand drug inflation was increasing at a much faster rate than the overall inflation rate, generic pricing and new generic launches were offsetting much of this brand inflation, resulting in flat trend for many employers.

Fast forward a few years and it's easy to see the market has changed dramatically. Generic drugs, just recently a mitigating cost factor for plans, are now causing upward price pressure. The New York Times, Wall Street Journal and other news outlets are running stories on the subject of rapid generic drug inflation and the U.S. Congress is asking generic drug manufacturers to explain why they are raising costs on certain drugs at such a fast rate.

At the same time, specialty drug costs are rising dramatically as new drugs hit the market and manufacturers raise prices on older drugs. By now, every Human Resources Vice President at a self-insured employer has probably heard more about the new Hepatitis C drugs Sovaldi, Harvoni, and Viekera Pak than they ever thought possible.

Because of this market-driven upward price pressure, many plans that were enjoying fairly flat spending on their prescription drug benefit just a few years ago are now seeing costs increasing at a comparatively rapid rate.

What's an employer to do*?

Forward thinking employers are implementing strategies to ensure their employees are getting the prescription drugs they need while taking steps to reduce the upward trend in costs. A few examples of these opportunities include:

Create competition in the pharmacy network

Pharmacies, just like other retailers, are often willing to give better pricing in exchange for volume. If a pharmacy has the ability to increase its market share, it is often willing to reduce the price it charges to a plan. MedImpact has helped a number of clients optimize their pharmacy network. Some clients have elected to create a preferred copay for less expensive pharmacies. This is similar to having in-network and out-of-network providers in the medical plan in which copays are less for the preferred in-network providers.

Other plans have elected to eliminate certain high-cost pharmacies entirely from their network. This ensures members act in a manner that is cost effective for the plan. MedImpact works closely with these clients to ensure that removing any pharmacies from the network does not impact the geographic access members have to an in-network pharmacy.

Incentivize use of the lowest-cost generics

While generic drugs are almost always significantly less expensive than their brand name counterparts, not all generic drugs are priced equally. MedImpact has implemented a program for clients in which we identify generic drugs that are expensive BUT there is a similar generic alternative that is much less expensive. Then, through a targeted communication campaign and moving the "expensive" generics to Tier 3, plan costs can be lowered substantially.

For example, a generic tablet that combines the medications amlodipine and atorvastatin costs more than $200 per month. By contrast, taking those two medications in separate tablets costs an average of $35 per month. By preferring the latter alternative and communicating this to the member and their physician, plans can free up monies to be used for other purposes.

Exclude certain drugs from the formulary

Traditionally, three-tier formularies have preferred certain brand name drugs over other brand name drugs that treat the same condition and have been determined to be clinically equivalent. This helped ensure that plan participants were being financially incentivized to take the drug determined to be clinically equivalent or superior while costing the plan less.

Just like retail pharmacies are often willing to give lower pricing in exchange for an increase in market share, the same holds true for drug manufacturers. By preferring certain brand drugs, the manufacturers of those drugs are willing to provide higher rebates. MedImpact has taken this to the next level by developing formularies that exclude certain drugs in exchange for getting even higher rebates. Plan participants who had been taking the excluded drug are given time to switch to the preferred brand but newly diagnosed plan members are required to use the preferred drug. The result is lower net cost for the plan through lower drug costs and higher utilization of preferred agents.

While market factors have changed in recent years, there are still opportunities to effectively manage costs while ensuring member satisfaction. MedImpact Self-Insured client teams are ready to help. To learn more about these or other programs to help manage costs, please reach out to your MedImpact Account Executive.

*Note: certain options may not be available or must be modified to comply with applicable state laws.

Michael Struhs
VP, Self-insured Account Management