Feb 6, 2012

The Concept of the "Customized" Pharmacy Benefit

One challenge employers face with tiered benefits is that they are often based upon the drug cost and may penalize some members with the most serious needs. For example, consider the situation of a patient with osteoarthritis. For 85 percent of patients, generic NSAIDs will provide adequate and appropriate therapeutic outcomes. Those members can secure such drugs under the average pharmacy benefit plan at a first or second tier copay level—typically $10 to $25 per prescription.
The challenge is with patients who have drug sensitivities, and who may be at risk for upper gastrointestinal (GI) bleed. Such patients are clinically suited for COX II (cyclooxygenase) inhibitors, an enzyme associated with pain and inflammation. If Cox IIs are the highest tier, they could cost patients $100/month; a price those on fixed incomes cannot afford. A far better approach is to have certain categories of drugs available at an affordable tier price through prior authorization, a formal process instituted by some PBMs to ensure appropriate utilization. Another reason to consider prior authorization for COX IIs is that these drugs have the potential to cause heart disease, kidney and liver failure as well as other serious illnesses. In late 2004, a popular COX II was voluntarily removed from the market by its manufacturer due to concerns over increased risk for cardiovascular events, such as heart attack and stroke.
The challenges of balancing costs and access are best addressed by recognizing that the goal of an effective pharmacy benefit program must be to encourage appropriate utilization, not to limit access to necessary prescription medications. By incorporating a customized approach to their pharmacy program, plan sponsors can develop a benefit focused on achieving the best outcomes at the most affordable costs.
An effective customized approach to pharmacy benefits includes:
  • Careful analysis of pharmacy and medical claims data;
  • A strong therapeutic formulary;
  • Programs to promote prior authorization for restricted and non-formulary drugs; and
  • Targeted disease interventions.
Claims Analysis.  By analyzing medical and laboratory data, PBMs can help to identify utilization rates, average length of therapy, physician prescribing patterns, and other information that can provide a more complete picture of the organization's overall utilization patterns. Once this information is gathered and analyzed, it will be easier to identify areas of need as well as potential problems. From this information, the PBM can develop a "customized" approach to the pharmacy benefit. This approach also helps to ensure that pharmacy benefits do not operate in a silo. Medical and pharmacy benefits are closely intertwined. To secure optimal clinical and financial results, medical, pharmacy, lab and other available claims data should be integrated, compared and adjusted based on each benefit's impact on the other.
Formularies.  Formularies have become an important benefit design feature for many employers today. The need for some type of approach to manage utilization among plan members today is clear. Consumers (e.g., employees and plan members) are encouraged to request high-cost newer drugs through pharmaceutical marketing tactics. One study showed that more than 39 percent of the time, physicians will prescribe medications patients see advertised. Employers want to offer their employees a competitive drug benefit in an effort to attract and retain valuable employees. However, offering, an "anything you want" strategy may have a negative financial impact on the plan sponsor.
In addition, a key issue with many employers' current formulary program is that they are often driven by a quest to secure the most rebate dollars. There are two fundamental flaws with this approach: (1) as the number of available generics increases, rebates will decrease; and (2) formularies not based on safety and efficacy can put the plan sponsor at risk for higher costs in terms of increased visits to physicians and the ER, as well as higher utilization of other prescription products.
The key to an effective managed care approach to pharmacy benefits is to align employer and employee incentives. Experienced PBMs can use pharmacy data to identify popular drug therapies and with that data, they can negotiate lower purchasing rates and rebates with pharmaceutical manufacturers for the most therapeutically appropriate and popular medications, and ensure those medications are on formulary.
The same claims analysis can also highlight the overall value a drug therapy choice may have for the plan sponsor. For example, a prescription drug may be more costly, but analysis might show that members will be more compliant, have fewer side effects and be more satisfied with the benefit if it is a formulary option.
A strong clinically focused Pharmacy and Therapeutic (P&T) Committee is a key component of an effective formulary program. P&T decisions must be based on recognized clinical literature, research and the latest outcomes data. When intensive review is combined with strong education of physicians and plan members, it can better highlight the optimal clinical value of the formulary. Strong and frequent education of physicians and employees is also important to ensure ongoing support and acceptance of the formulary.
Prior Authorization.  The use of a formulary and P&T committee can also help to build a strong and effective prior authorization program. As noted, prior authorization is the process used by PBMs to approve formulary and nonformulary prescription drug choices where the plan needs to exert control or restrictions on the drug in question. Formulary programs should be developed, and their rationale communicated to physicians and plan members in an effort to ensure that while available, prior authorization is rarely needed. When it is necessary, it must be highly responsive—physicians should be able to speak immediately with pharmacists if needed and their request must be promptly answered—preferably while on the phone with the pharmacist. In the event a request for a drug is denied, specific clinical and outcomes data should be available to support the plan's decision and access to a plan medical director provided to the physician whose request is being denied.

Targeted Disease Interventions

While formularies and prior authorization are the cornerstones of a customized pharmacy benefit, the next step for employers is to take that foundation and use it to develop more targeted disease interventions (TDIs). TDIs use an integration of pharmacy and medical claims data to identify areas within the pharmacy benefit that involve high cost, highly utilized drugs. TDIs provide value to plan sponsors as they can help to improve outcomes and manage costs. In addition, a targeted approach to disease management can help large self-funded plans better meet requirements for Health Plan Employer Data and Information Set (HEDIS®) standards and Medication Therapy Management Programs as required under the Medicare Modernization Act. For example, the financial impact of migraines on American business is close to $18 billion a year in lost wages and decreased productivity. Yet, less than one-half of the 35 million Americans afflicted with migraines are treated. Recognizing the need to address the impact of migraines, a West Coast PBM developed a Migraine Prophylaxis Management program. The TDI focused on three key areas:
  1. Helping physicians recognize patients that needed migraine medications, and providing information on available pharmacologic treatment options for those patients;
  2. Educating plan members through their physicians on the causes and symptoms of migraines; and
  3. The utilization of first-line over-the-counter therapy, which has been clinically proven to provide effective pain relief for many migraine sufferers.
The plan sponsor reported significant results from the program, including:
  • Increasing the targeted number of patients on prophylactic migraine medications from 31 percent to 69 percent;
  • Achieving a $16.57 PMPM savings in medical costs (migraine related) among members targeted for the intervention.
  • Decreasing migraine-related ER/hospital visits and physician visits by 63 percent and 29 percent respectively in members targeted for the intervention.
Most significantly for the plan sponsor, while appropriate utilization of medications increased, overall medical costs (migraine related) decreased from $42 to $25 PMPM. Another high-cost, high-impact drug utilization category for employers is antidepressants. The financial cost of depression to society in missed days at work and school, medical expenses and premature death are more than $43 billion annually. Close to 20 million people each year develop depression, yet it remains one of the most under-diagnosed and treated diseases in the nation. A depression TDI for a Midwest health plan helped to increase medication compliance and persistence by 8 percent and 14 percent respectively for the acute phase of therapy, and by 12 percent and 16 percent, respectively, for the continuation phase of therapy. The health plan viewed this as a highly successful and worthwhile program. In addition, this TDI also resulted in improvement of the health plan's HEDIS scores.

Feb 2, 2012

Traditional Pharmacy Benefit Cost Management Practices

While many plan sponsors are exploring alternative benefit designs, it is also important to recognize that existing cost management strategies may continue to play a role, either in support of an alternative plan or as an ongoing component of the benefit program. Plans and PBMs may wish to refocus their vision to use traditional benefit designs in more tailored, aggressive and innovative ways, thus achieving their goals without the need to move to more radical alternatives. Poorly managed traditional benefit designs are often to blame for runaway cost trends.


Generic drugs now make up more than 50 percent of all prescriptions filled but represent only a fifth of dollars spent. By 2010, patents will expire for 15 blockbuster drugs (those with sales exceeding $1 billion annually), including the hyper-cholesterol drug Zocor®, the antidepressant Zoloft®, and the "mega-blockbuster" ulcer medication Prevacid®, a prescription drug with current sales of $3 billion.
Generic drugs save consumers an estimated $8–10 billion dollars annually at retail pharmacies. However, plans sponsors should not simply automatically switch from branded to generic drugs. Any savings from generics should be balanced against the clinical value of the branded drug, as well as the potential cost implications (e.g., loss of rebate revenue, which may make the net cost difference negligible).
Another factor to consider is the effect of the initial six-month exclusivity period on generic drug pricing. While brand-name drugs typically receive between nine and 12 years of market protection after the Food and Drug Administration (FDA) approval, the period of exclusivity granted to the first company to file and receive FDA approval for a generic drug is only six months. To capitalize on their exclusivity, many generic drug manufacturers will actually set the price of the generic to within 15–20 percent of the brand-name price. Thereafter, prices may drop more dramatically, as other manufacturers are free to enter the market.
When deciding what, if any, changes should be made to their current generic drug programs, plan sponsors should take the following steps:
  • Conduct a thorough analysis of current pharmacy claims data;
  • Determine the current utilization rate for brand name drugs that have generic alternatives; and
  • Conduct a prospective analysis using current utilization rates compared to branded drugs scheduled to become generics to help predict costs in the short- and long-term.
The last step is to determine the impact of moving to generics on the branded drug rebates and other cost factors. In some cases, lack of generic competition keeps the generic prices near that of the brand they are competing against. In some cases brand rebates will allow for parity with the generic price. Be sure to fully understand the net cost analysis before deciding on a generic strategy.


One of most common PBM cost management strategies is a copay model. Such programs are simple to implement and understand. However, challenges include its propensity to insulate plan members from actual costs and the inability to drive members to preferred drugs that may be less expensive and perhaps more effective.
Tiered Benefits.  Tiered benefits provide another way for plan sponsors to offer coverage for popular, high-cost drugs, while promoting cost-sharing for the most expensive medications, or those not on the formulary. Tiered benefits have grown considerably over the past five years. While in the past most plans offered one or two tiers, today some plans offer up to five tiers on their benefit plan. While tiered benefits are growing in popularity, often plan sponsors do not recognize that they can be combined with managed care techniques such as prior authorization—allowing the plan sponsor to secure even greater savings and further ensuring patients can access appropriate medications when needed. Toward that end, some plan sponsors are developing closed benefits in conjunction with their tiered programs. Such a strategy works well as defined therapeutic classes, including ACE Inhibitors for the treatment of hypertension, NSAIDs for allergies, and Selective Serotonin Reuptake Inhibitors (SSRIs) for depression, often require prior authorization.
Copays for tiered benefits have increased steadily over the past few years. According to the 2003 edition of A Guide to Drug Cost Management Strategies, between 2000 to 2003, copays increased from $7.51 to $8.14 for first tier drugs (often generics) to $31.30 from $25.71 for third tier drugs (typically the highest cost medications).
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