Recent legislative changes affecting the pricing of generic drugs have refocused employer attention on better management of drug plan costs. With the growing number of high-cost drugs in the pipeline, employers will face even greater challenges and the struggle to balance affordability with patient care will be more pronounced. However, by becoming more aware of present and future cost stressors, as well as possible solutions, organizations can effectively manage this expense.
Many of today’s “leading-edge” solutions have been around for some time. While they have not been universally adopted—mandatory generics, therapeutic formularies, dispensing fee caps, managed mark-ups, 90-day fills, for example—they are gaining ground. These approaches really address the factors that have been causing drug plan costs to rise for the last decade, but new issues are right around the corner and they will require a different set of solutions.
Tomorrow’s challenges
The primary issues that drug plan sponsors will soon need to address are increasing costs per prescription and annual treatment cost increases. Pharmaceutical research is heavily focused on biologics and the number of these and other specialty drugs with high price tags is growing. Drugs that treat rare diseases are used by fewer patients so, to recover research and development costs, their price tag is often significant.
Another growing strain on drug plans is the increasing number of prescriptions and claimants. Consider the following factors and how they affect the ongoing affordability of employer-sponsored drug plans.
- Maintenance drugs for chronic therapies, such as multiple sclerosis or rheumatoid arthritis.
- Drugs to treat previously “untreatable” conditions, including many types of cancer.
- Evolving therapeutic guidelines.
- Earlier diagnosis or detection.
- Greater need due to lifestyle and an aging population.
Is it the right drug?
In the face of escalating costs, employers must address drug plan cost management with a consideration of whether or not the use of a particular drug is medically appropriate. There are several approaches and techniques that are often used for this, such as prior authorization, step therapy and controlled formularies. However, to control risk and ensure optimal utilization, there are other possible methods available, such as:
- hospital, experimental and clinical trial administration;
- off-label utilization;
- prescription not in line with therapeutic guidelines;
- determining whether a lower cost, equally effective treatment exists; and
- measuring the risk of inappropriate use.
Of course, not every employer will desire the same degree of intervention or control.
Who pays?
Once an employer determines that a drug should be covered for a plan member, the next question is, By whom? Most will agree that fiscal constraints on the part of the employer should not interfere with the employee getting the best possible care. However, before agreeing to pick up the cost of the drug through the plan, employers have a right to demand proof that members have sought coverage under additional funding programs.
If a provincial plan declines to cover the cost of a drug, certain special access and funding programs may be available. These are generally disease-specific programs run through government or quasi-governmental agencies. In addition, drug manufacturers may offer patient support programs for certain conditions and/or medications. In this case, the focus is on compliance and adherence, as well as support. Occasionally, there is also financial support, though it is generally available only to those with no other coverage. Private payors therefore seldom pursue these programs, but it is important to know that they are available.
In order to better manage drug plan costs without sacrificing patient care, employers will ideally exhaust all these possible sources of payment and assume the role of payor of last resort.
Ironically, if employers automatically reimburse all new products, the government may eventually conclude that there is no need for it to cover hospital drugs, cancer treatments, vaccines or medication for rare diseases. For the future sustainability of employer drug plans, greater push-back from employers today will encourage greater accessibility of government coverage in the future.
The right price
For most other $30,000 consumer purchases, the price is negotiable. So why is that not the case for the price of prescription drugs that sometimes cost just as much? Presumably, the desired end state is reasonable profits for all parties—drug manufacturers, pharmacies and insurers.
With respect to manufacturers, private payors will want to ensure they are paying the lowest reasonable price for the underlying ingredient costs. They might offer preferred listing on formularies in exchange for a price cut or link payment to successful treatment. Employers might also request that the cost of drugs include other value-added services. Whatever the arrangement, there is a real need for organizations and pharmaceutical manufacturers to work together.
In the case of pharmacies, the current flat percentage mark-up model leads to inequities as the overall mark-up paid can exceed appropriate reimbursement for the effort involved to dispense a drug. If a drug costs $3,000 per claim, is a $300 mark-up reasonable? Similarly for insurers, adjudication costs that are generally a percentage of claims and per transaction fees for value-added services are both open for discussion.
Ongoing claim management
If an employee collects $30,000 on long-term disability, case management is required. Why wouldn’t the same apply when a $30,000 drug bill is incurred? Mandating employee compliance and care management has several objectives: controlling risk and ensuring optimal utilization; and, ensuring proper care is provided to improve the individual’s health. Over time, this model could evolve to one where benefits are regarded as a joint responsibility, rather than an entitlement.
A number of parties could potentially provide medical case management. Insurance providers are already looking to develop these services, but other possibilities are pharmacies, other front-line health practitioners and possibly specialty vendors. In all cases, however, all parties—the insurer, case manager, healthcare provider, employer and employee—must work together.
In order for employers to manage high drug costs while ensuring employees get the best possible care, they must rethink their entire drug reimbursement process and adopt a more assertive stance. Some of the above-mentioned solutions are still in their infancy; nevertheless, it is not too early to consider these options and determine the best possible approach.