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Pharmacy Cost Management

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Pharmacy Cost Management 

A recent Mercer survey identified that health plan sponsors will likely see accelerating cost growth as multi-year health plan contracts with providers are renewed and begin to reflect inflation-driven price increases. In addition to inflation, prescription drug cost is growing at nearly twice the rate of overall health benefit cost, driven in large part by specialty drugs. This information is likely less of a revelation and more a confirmation of what you are already experiencing with your health plans.

So what can plan administrators do? In this article we will explore several approaches that plan administrators can consider to help reign in the rising costs of healthcare.


Carve-In vs. Carve-Out

The pharmacy benefit is considered a carve-in (aka, “bundled” or “integrated”) model when the company that provides the medical plan administration owns and/or manages the pharmacy benefits. This integrated approach keeps everything together in one package that is coordinated by your medical health plan vendor. Carve-in approaches are easier to administer for the plan administrator, can offer a more straightforward process for plan members and the vendors that offer these arrangements argue there are built-in efficiencies that improve overall claims management.

However, in our experience the vendors offering the carve-in approach have not been able to substantiate the built-in claims management cost efficiencies and their proposed Pharmacy Benefit Management (PBM) contract pricing is often considerably less competitive than the contracts offered through independent, carve-out PBMs.

A carve-out pharmacy benefit approach offers some advantages in addition to potential savings. Listed below are some of these benefits:

  • Transparency - A bundled prescription drug plan with an employer’s medical plan can have less transparency. If a carve-in PBM contract offered by a large TPA representing tens of millions of members does not offer more competitive Average Wholesale Price discounts and guaranteed rebates than a direct carve-out contract, then it seems reasonable to assume that not all costs are being disclosed.
  • Claims Data - The pharmacy reporting being provided by carve-in PBMs is improving but it still is not as detailed as reporting available from carve-out PBMs.
  • Account Management - TPAs offering an integrated approach often rely too heavily on their account management teams who are more familiar with medical than pharmacy when it comes to reviewing reporting, addressing pharmacy program concerns, etc.
  • Flexibility and Control with Plan Design - Generally speaking, carve-out PBMs are more forthcoming with potential plan options and optional programs that are designed to help control pharmacy costs and/or improve the member experience.
  • Routine Contract Improvements - Carve-out PBMs are often much more willing to allow annual contract negotiations. Incremental annual improvements to the contract can have a substantial financial impact over the course of several years.


We recommend taking a very close look at each of these approaches next time your organization markets these services.


Appropriately Managing Your Pharmacy Benefit

Pharmaceutical solutions for health issues have changed the face of healthcare, providing ways to effectively manage a multitude of chronic conditions and even offering life-saving therapies. But these therapies can come with significant cost, so careful management is essential to ensure the pharmacy benefit is utilized within plan parameters.

Consider the financial impact of GLP-1 drugs, like Wegovy and Ozempic, on the pharmacy market. These drugs that can cost $1,300 per patient per month. Pfizer has estimated the GLP-1 market could be worth more than $90 billion a year by 2030, up from $25 billion.

Originally approved to manage diabetes, these drugs are now often prescribed off-label for patients dealing with obesity. With this off-label usage, health plans are seeing a rapid rise in the number of GLP-1 prescriptions and the associated cost. The University of Texas System saw its utilization more than triple over the past 18 months, with costs reaching $5 million a month for this drug class. More telling, the Teacher Retirement System of Texas found it had been covering weight-loss drugs such as Wegovy “apparently by mistake.” The cost of the off-label usage was not factored into the premium calculation, leading the system to absorb the additional cost.

This is not to say that plans should not cover these drugs, particularly for diabetes. But ensuring your plan is appropriately monitoring utilization is an essential step in controlling your drug spend.


A New Approach to Pharmacy

Almost universally today, health plans acquire their drugs through PBMs like CVS or Express Scripts. But one Texas-based company, bankrolled by billionaire businessman Mark Cuban, is taking a different approach by buying drugs directly from the pharmaceutical companies and selling them almost at cost, and in some cases manufacturing the drugs from scratch.

The company looks to cut out the many middlemen involved in the sale of generic prescription drugs, leading to substantial savings to the consumer. Cuban says the goal is “to bring the prices down for as many generic drugs as we can and to be completely transparent about it so people start to understand how the industry works [and] why we are disrupting it.”

The Mark Cuban Cost Plus Drug Company doesn’t accept health insurance but says prices will still be lower than what people would typically pay at a pharmacy. One drug for diabetes patients, metformin, sells for $3.90 for a 30-day supply, compared to a retail price of $20, the pharmacy said. A 30-count of imatinib, which is used to treat leukemia and other cancers, goes for as low as $17.10 at Cuban's pharmacy compared with $2,502.60 at other pharmacies.

Blue Shield of California recently announced that it would replace CVS’s Caremark pharmacy-benefit management unit with a group of companies including Amazon and Mark Cuban’s Cost-Plus Drug Company. This cutting-edge approach to pharmacy is clearly not mainstream…yet. But the fact that major health plans are moving from the traditional PBM model is indicative of a desire to shake up the market by having health plans exert greater influence over the cost of acquiring drugs for and distributing them to its plan members.


We’re Here to Help

The pharmacy benefit is an increasingly large component of a plan’s overall healthcare spend. As the information above illustrates, there are a lot of factors to consider when selecting and managing your plan’s pharmacy benefit. MMA St. Louis has a talented team of experts ready to assist you in making the best choice for your organization.

Scott S. James
Vice President – Public Entities & Academic Institutions
T +1 314 594 2746 | M + 314 703 5981