Summer is winding down here in New England. The kids are back to school, the days are getting a little shorter and the commute to Boston is back to a familiar grind. At Lockton, we are working with clients; finalizing vendors, plan designs, rates, contributions, etc. In the build up to Open Enrollment and the 2020 plan year I thought a good post summer topic would be an ongoing challenge that all our clients are facing and how we might be able to help…Pharmacy Management.
The pharmacy market is changing rapidly and at times might be difficult to follow. In July, in conjunction with NEEBC (New England Employee Benefits Council) we co-presented on this topic with one of our partners, RxBenefits. Hopefully, we shed some light on what’s happening and what it means to employers and their people.
The impact of recent PBM/Carrier transactions will add even more complexity to an already complex market. As the PBM market consolidates (Cigna buying ExpressScripts, CVS buying Aetna, and United Health’s expansion of Optum Rx), disruption will occur as these companies convert clients, systems and deploy new solutions. Understanding and navigating these massive entities was already difficult prior to this consolidation. It will now require additional focus, scrutiny and oversight. They will also undoubtedly introduce new models which will require examination and due diligence as their value will only be proven out down the line.
Of all healthcare spend, pharmacy is the most volatile as it’s expanding to become the fastest growing components of healthcare. In 2008, pharmacy represented 10% of total health spending. In 2018, it has swelled to 19%. The average gross cost per Rx was $72 in 2008 and in 2018, was $126 (75% increase) and Rx costs per member per month (PMPM) also increased by 75% from $66 PMPM in 2008 to $116 PMPM in 2018.
The fastest growing component with the pharmacy benefit is the utilization of specialty drugs. While these drugs only comprise just over 1% of total utilization, they account for 40.2% of the total pharmacy spend. Spinal Muscular Atrophy can be treated in newborns and toddlers through Zolgensma that is being priced at $2.1 Million. Spinal Muscular Atrophy is a horrible disease and great innovations in specialty drugs as well as gene therapies can cure them. These treatments, however, are incredibly expensive.
And more drugs are on their way to the market. The graph below illustrates drug patent expirations from 2015 through 2023: $39 Billion “opportunities” from the manufacturers’ perspective or, said differently, $39 Billion in costs from the plan sponsor and member perspective. The pipeline in the gene therapy sector is also robust and these treatments will carry 7 figure pricetags.
Given all of the challenges in Pharmacy and Drug Management, we highly recommend that employers implement an active pharmacy management program through a qualified broker, consultant or other 3rd party. In this way, employers can sustainably achieve the best clinical outcomes and the lowest possible costs. Programs should be designed to ensure that the right person receives the right drug at the right cost for the right reasons.
A proactive transparent strategy focused on clinical appropriateness can effectively generate sustainable value across the pharmacy plan with minimal impact on members. The strategy should focus on four main pillars to success – Formulary Optimization, Utilization Management, Managing High-Dollar Claims and Leveraging Manufacturers’ Assistance. Plus, you should be maximizing the volume of rebates through the PBM.
A comprehensive clinical solution is best positioned to address both current and potential pharmacy challenges as well as deliver the best healthcare and financial outcomes. In this way, employers can maximize the value of their pharmacy benefit that yields:
If you’re concerned about the effectiveness, impact and cost of your pharmacy program and would like to learn more about Lockton’s approach to Pharmacy Management and how we might be able to help, please reach out.