Drug Management – Part 2 of 2

Dec 12, 2013

Part 2 turns attention to the many tools plan sponsors may utilize to manage their drug inflation trend. The following provides a summary of various plan design tools available and the author’s commentary on the long term impact each may have on drug inflation.

Coordination Of Benefits (COB): Best practices for benefit admin is to conduct a positive enrolment every couple of years. Member information changes frequently and data shows updating spousal and dependent information can ensure all plans share costs properly (Long term savings of 2-3% on all Extended Health and Dental can be achieved.)

Coordination with other programs: Provincial and drug manufacturing programs can offset both sponsor and member costs. (Significant inflation lowering of over 50%.)

Dispensing Fee number limits: For maintenance drugs, a sponsor can instruct the insurer to limit number of dispenses to ensure days supplied are not shortened. This could be important on plans that do not employ a dispensing fee deductible. As an example, a plan could limit coverage to four dispensing fees per year ensuring the pharmacist must dispense for at least 90 day periods.

Maximum Dollar markup: Drug costs have 3 components: The wholesale cost each pill; a pharmacist’s mark –up on the wholesale cost ; and the dispensing fee. Most plans have default limits on drug costs defined as a percentage of the wholesale costs. These defaults do not include a dollar limit maximum. With some drugs well into the hundreds or thousands per script, the dollar mark up can be substantial unless limited by plan design.

Generic Substitution: Considered a first line of defense for escalating drug costs, all plans should consider the modern day version of this option. Many insurers call their program Mandatory Generic although a more pleasing term for members is called “Enhanced Generic”. Brand drugs under this version can be accessed by furnishing medical proof of the need for the brand (e.g. adverse reaction to generic). Statistically, well under 1% of claimants need to switch out from generic to brand or from brand to generic. (Potential savings are 5% of drug spend.)

Health Case Management: Navigating the various elements of a complex disease can be challenging for members. This case management option, offered by a limited number of insurers, can provide a similar case approach found in disability management. Coordinating with available provincial programs, drug savings through central dispensing and bulk purchase and drug adherence to maximize patient outcomes are all aspects of Case Management. Please note that many drug manufacturers offer “free of charge” Patient Assistance Programs. As compliance becomes a much more talked about aspect of drug management, Health Case Management is even more important for complex, high cost drug treatment programs. (Savings are modest for plan sponsors but longer term can help curb Stop Loss premium increases.)

Multi Tiered Formularies: Two tiered approaches have been around for many years and now there are some three tiered options emerging. These are much more intricate and do have potential challenges for understanding at the member level. Savings can be considerable and communication options can be robust with the right partner or solution. (Immediate savings around 8% combined with long term inflation reduction of 50% or more).

Preferred Provider or Designated Pharmacy: These programs have different approaches depending on the insurer. Some programs take a voluntary approach and encourage shopping at a preferred pharmacy chain through higher coinsurance or waiving prescription deductibles. Other plans designate specific pharmacies for certain drugs and this centralized approach can offer modest savings for members and sponsors. The centralized approach is usually for higher cost drugs and thus savings will mostly be captured in possible Stop Loss premium inflation reduction.

Prior Authorization: Many insurers require special case handling and review before a high-cost specialty or biologic drug will be reimbursed. This approach is similar to many provincial Special Authorization or Limited Use programs whereby members must try first line or second line therapies before approval is granted. Many prior authorization programs coordinate with provincial programs. (Savings can be significant for sponsors who have existing large drug claims.)

The above offers a small summary of the various approaches sponsors may take. Your benefit advisor will likely have additional solutions to consider.

Governments, with drug budgets in the billions, routinely make adjustments to their programs to limit their risk. What are you doing to limit drug risk with a budget considerably less than Billions?

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