Not long ago, drug cost management typically entailed reductions in coverage for plan members in the form of lower co-insurance, increased deductibles, dispensing fee caps, etc. It wasn’t so much cost management as simply cost shifting from employers to employees.
Over the past couple of years, insurers have introduced several innovative initiatives focused on managing costs for both plan members and plan sponsors, most of which do not require unpopular reductions in coverage levels.
Below is a brief description of some of the drug cost management options launched within the past few years.
Mandatory/enhanced generic substitution
While generic substitution provisions have been available for many years, insurers were limited in their ability to enforce generic usage as plan members could usually continue to be covered for the brand drug simply by getting their doctor to write “no substitution” on the prescription.
Under the new mandatory/enhanced generic substitution policies, plan members must provide medical evidence of an adverse reaction to the generic drug in order to remain on the brand drug and have it eligible for full coverage under the group plan. Great-West Life recently indicated that, “since the program began, less than 0.4% of plan members have submitted a form requesting a brand name drug instead of its generic equivalent.” With generic drug prices in most provinces ranging from about 35% to as low as 18% of the equivalent brand cost, and few plan members adversely impacted, this approach appears to be a no-brainer.
Prior authorization for specialty drugs
In order for a plan member to be covered for certain high-cost specialty and biologic drugs, they must receive prior approval by the insurer. This process typically requires the member to try lower-cost therapies before approval is granted.
Health case management
Some insurers are applying an approach similar to disability case management for plan members taking certain high-costs drugs. Case managers work closely with the member, the physician and pharmacist to ensure the patient is receiving the most appropriate treatment and adhering to medication as prescribed. The case manager may also help co-ordinate with any available provincial or manufacturer patient assistance programs or trial drug programs and/or require the member to purchase the drug at a specific lower-cost pharmacy.
Tiered formularies
Tiered formularies have been available for long time, but the new multi-tiered formularies being offered by some insurers have increased substantially in sophistication. An example of the new breed of multi-tiered formularies consisting of three tiers is 90% co-insurance for most generic and lower-priced brand drugs, plus 70% co-insurance for higher-priced generics and mid-priced brand, plus 50% co-insurance for higher-priced brand drugs. Cost savings resulting from this type of plan structure can be considerable but may be frustrating for plan members to understand even if it’s accompanied with a comprehensive communication campaign.
Preferred provider networks
Some insurers are partnering with pharmacy chains, offering preferred pricing to participating plan sponsors and their members. There is typically no requirement that the member shops at the preferred pharmacy, but there may be financial incentives to do so, such as higher co-insurance levels or waiving of per prescription deductibles.
Dollar limit on markups
Pharmacy benefit managers (PBMs) often apply a reasonable and customary limit on pharmacy markups as a percentage of the ingredient cost (e.g., 10%), but there is often no dollar limit applied (e.g., to a maximum of $200). Some insurers are offering plan sponsors the ability to set a dollar limit on the pharmacy markup, particularly for high-cost drugs, where the markup may be several hundred dollars.
Limit on number of dispensing fees
In a recent Manulife study, there was evidence to suggest that some pharmacists are reducing the average number of days supply dispensed for certain maintenance medication. With generic price reform taking a bite out of pharmacists’ profits, it wouldn’t be surprising for them to look for ways to recoup some of their lost revenues.
Some insurers can now offer plan sponsors the ability to limit the number of dispensing fees per member that will be covered under the plan for specific maintenance drugs in order to deter pharmacists from shortening the days supply dispensed. For example, the plan sponsor may decide to limit coverage to only four dispensing fees per year (i.e., the pharmacist must dispense for at least 90-day periods in order for all dispensing fees to be covered in a year).
Narcotics risk management
Insurers are auditing use of narcotic drugs and taking appropriate action where abuse is suspected.
Co-ordination with other programs
As briefly noted above, insurers are doing a better job of co-ordinating with provincial- and manufacturer-sponsored drug programs where available to reduce costs to the plan sponsor and member.
As drug costs become increasingly more transparent, insurers are offering more leading-edge drug cost management options. While these initiatives won’t completely solve plan sponsors’ drug cost issues, they do provide some viable options to help better manage costs, most of which don’t require reductions in coverage.