Many drug plan sponsors find it hard to believe that they can save 4% to 8% of their current spending simply by optimizing their existing plan design. Some plan sponsors assume that if this opportunity was available, they would have uncovered it long ago. Others assume that since their drug plan trending has decreased in recent years (thanks to a limp pipeline of new drugs and a wave of blockbuster generic drug launches), they must be seeing these potential savings already—but they aren’t.
These savings exist, but there is a catch: they cannot be achieved using any of the old tools in your tool box. That’s why the vast majority of Canadian plan sponsors have yet to realize these enormous opportunities.
The tool required to accomplish this task is plan-specific transactional-level drug claims data. Transactional data differ immensely from the aggregate-level experience data that all plan sponsors receive from their carriers or administrators throughout the year. The problem with aggregate data is that it does not translate into meaningful information that can be used for strategic decision-making purposes or to isolate immediate plan savings. In other words, too much data, not enough information.
Harnessing the power of transactional-level data doesn’t just lead to cost savings—that’s only the tip of the iceberg. This data can also help to isolate and quantify existing and emerging cost drivers within the plan and to model the financial impact of proposed design changes unique to the plan’s own experience. Some ambitious sponsors are even using transactional data to project future plan costs and liabilities, and to integrate disability and drug claims data, with the goal of identifying leading indicators of disability and optimizing overall disability management.
Square One
The easiest way to distinguish between the aggregate-level data that you receive at renewal time (or periodically throughout the year) and information that can be used to isolate savings and strategically manage your plan moving forward is to look at your aggregate-level reports and ask, Can I determine where immediate opportunities exist for savings and how much these savings represent? Can these reports help me to determine the financial impact of an alternate plan design that takes into account the current cost drivers within my plan, not just someone’s book of business?
If you are looking at aggregate-level reports, the answer to both questions is simple: no. Aggregate-level information is good for a superficial view of plan costs and utilization, but not for much else. That’s why most plans haven’t achieved any meaningful cost containment over the past three to five years. However, all of this is possible using raw, blinded transactional-level drug claims data.
Take, for example, the case of a national publicly traded Fortune 100 company. The company wasn’t content with the current plan experience, but when the decision-makers were asked what they wanted to do about it, they weren’t sure. Then, one person in the meeting pulled out a one-inch binder full of detailed aggregate reports from the plan’s carrier. Management felt the answer must be in the binder. However, when asked the questions posed earlier, it became clear to this sophisticated plan sponsor that all of these beautifully laid-out reports wouldn’t yield the information the company so desperately needed.
A Case Study
An Ontario-based plan sponsor woke up one day in late 2007 to a 14.5% increase in drug plan spending. The company had no idea what had happened—whether this trend would continue in the next year or if the current plan design needed an overhaul to ensure its sustainability. If changes were required to contain costs moving forward, the plan sponsor didn’t know which path would achieve the required cost containment without reducing the value of the benefit to employees.
The goal wasn’t to slash spending; rather, it was to ensure better value for the dollars spent and the plan’s sustainability moving forward. Things were not looking good in late 2007. The average cost per claim (before cost-sharing) was more than $76.50—nearly 30% higher than the national average at the time.
Following a thorough review of the existing plan design and experience using 100% of the transactional claims over a 24-month period, the plan sponsor discovered that while some money could be saved by optimizing the current plan design, this strategy alone wouldn’t be enough. Two key threats were also uncovered.
First, plan costs were being driven by an increase in the use of specialty drugs (i.e., biologics) among younger plan members, as well as a material increase in the number of claims for age-related chronic conditions among plan members over the age of 45—a double whammy from both ends of the spectrum. Second, the proportion of plan spending on multi-source brand name drugs (i.e., drugs that have exact generic equivalents) was nearly 70% higher than the national average. There was little regard for the use of more cost-effective therapies, which helped to explain the nearly $77 average cost per claim.
The plan sponsor now had concrete financial evidence to support the need for change. The next step was to look at three separate plan design options to assess where changes could be made to yield the necessary savings without negatively affecting the plan members.
When the numbers were run and reviewed by the management team, the decision was obvious. Adopting a new plan design got the green light. In fact, the projected savings were so significant that the employer actually added to other areas of the benefits package, based on needs identified from the transactional-level data.
How did the transition go? Thanks to six months of effective, proactive communication and education prior to implementation, less than 1% of plan members raised questions or expressed concerns about their coverage in the first four months following the change. The new plan design did not adversely affect anyone.
The important lesson here is that plan design change does not necessarily lead to an uprising among employees. It does so only when the change is made in an information vacuum with ineffective, short-sighted provisions that do not contribute to the benefit’s future sustainability. In today’s environment, where many companies are experiencing layoffs, frozen salaries and underfunded pensions, plan members are much more willing to participate in responsible, thoughtful design change than senior management may give them credit for.
The Road Less Travelled
For many plans, there is so much waste happening behind the scenes that simply eradicating the extraneous spending is all that is needed in the near term. The value of looking at transactional-level data is that it allows you, as a plan sponsor, to consider all of the available opportunities and determine which path makes the most sense to achieve the required goals with the least disruption.
For another plan sponsor in Western Canada, analysis of transactional-level data determined that hundreds of thousands of dollars were leaking out of the plan every year because the plan did not have appropriate therapeutic limits in place to protect against narcotics abuse and inappropriate use of migraine drug therapies. After factoring in the inefficiencies in the way people were consuming chronic therapies (i.e., filling prescriptions weekly or monthly), this figure more than doubled.
Without having to make any changes to cost-sharing parameters, plan exclusions or any structural design elements, this sponsor now has a strategy that will return millions of dollars to the plan in the years ahead—simply by addressing aspects that do not have an impact on the vast majority of the members.
The drug plan environment today is much different and far more dynamic than it was even a few years ago. It will take a new tool in your tool box to unlock opportunities for more strategic drug plan management in the years ahead.