That old admonition to “get your priorities straight” has never been more important in the realm of employer-sponsored health benefits. While overall healthcare costs keep rising and programs to manage specific disease states keep proliferating, one target stands out commanding increased attention: pharmacy spending.
Pharmacy spending now represents the largest slice of the healthcare pie for many employers, and it’s only expected to grow as more expensive pharmaceuticals come to market.
Fortunately, the pharmacy benefit also happens to be the largest healthcare spending category that has yet to be tackled by effective utilization management, so there’s cause for optimism if plan sponsors prioritize appropriately.
Employers would do well to prioritize pharmacy in their benefit design, and they don’t necessarily have to spend a lot to save a lot or require significant change. For plan sponsors not ready to change out their PBM, for example, there are program options that can complement existing PBM arrangements. And because pharmacy is woven into virtually all health conditions, robust medication management may offer a greater ROI than the multitude of new benefit solutions that promise to lower costs in specific healthcare categories.
For many employers, pharmacy spend is already the largest category of spend, and a new wave of spending is fast approaching.
Prescription drugs account for more than 1/5 of the Commercial premium dollar . Pharmaceutical costs have even eclipsed out-patient hospital costs, which account for 19.8% of the premium dollar. Commercial payers, meanwhile, spent 19% of premiums on in-patient hospital costs and 12% on doctors’ visits.
That means prescription drug spend as a category is larger than any individual disease area that gets plan sponsors’ attention.
Consider the share of spend for the most expensive conditions. According to Kaiser Family Foundation data, the biggest spending categories are: circulatory system at 11% of total spend, musculoskeletal at 10%, nervous system and respiratory at 8% each, endocrine at 7%, and cancers and tumors, injuries and poisoning, and infectious diseases all at 6%. Further down the list is spending on such things as mental health (5%) and pregnancy and childbirth (2.2%, fully recognizing that women's health is more expansive than this narrow definition).
These percentages all include prescription drug spending, are often addressed by specific point solutions, and are still dwarfed by prescription drug spend as a category.
Pharmacy spend isn’t just large, it’s also growing fast.
Pharmacy spend trend is estimated at 8% for 2022, according to Segal’s estimates. That easily surpasses each of the areas with the highest per member per month (PMPM) trend, according to this 2021 report from the Health Action Council: asthma (with a PMPM trend of 6.4%), diabetes (6.4%), hypertension (6.3%), back disorders (3.4%), mental health and substance use (2.7%).
If this level of spend and trend isn’t a sufficient catalyst to rein in spending, then the fast-approaching wave of pharmacy spending should be.
The upcoming wave of pharmacy spend is driven by several dynamics:
75% of the ~7,000 medications in development are specialty medicines
98% of 2020 utilization increase resulted from conditions with new therapies and indications
20% of prescriptions are now written for off-label uses
42% increase in novel FDA drug approvals in 2018-2021 vs. prior 3 years
27% decrease in FDA approvals with 2+ pivotal trials (i.e., fewer trials required)
48% of adults reported deferring care due to COVID-19, which will drive expected demand for care and Rx utilization growth in 2022 and beyond
Employers who understand these dynamics are rightly concerned. But are their traditional PBMs well suited to tackle the challenge? We don’t think so.
Traditional PBMs’ and employers’ incentives are not aligned.
Consider the pharmacy spend equation: Pharmacy Spend = Price x Utilization.
Traditional PBMs benefit from more drug utilization – it’s inherent in their business model. These PBMs, like CVS Caremark, Optum Rx, and Express Scripts, collectively dominate 80% of the PBM market.
For traditional PBMs, more volume equates to more revenue and profit through larger volume-driven rebates from drug manufacturers, as well as mail order volume and specialty drug volume since they own those fulfillment channels.
PBMs’ already-massive profits continue to grow – Caremark’s operating income grew 170% from Q1 ’19 to Q1 ’21, for example.
So, yes, they may offer many programs to impact utilization. But that doesn’t mean they’re effectively implementing them or won’t charge plan sponsors more to foot a bill for programs in order to cover lost revenue from drug volume.
It’s that simple.
It’s important to treat the whole person and manage the “full medicine cabinet,” not focusing only on one disease or specialty drug at a time.
Employers have been grappling with rising healthcare costs for years. And their job is tough: a constant balancing act in the face of competing priorities across all parts of their benefits portfolio.
Looking for ways to improve health outcomes while trying to tame rising costs, many organizations have started offering multiple point solutions as part of their health benefit plans. Point solutions are designed to fill gaps in the healthcare care experience that aren’t fully covered in core benefits, offering disease management approaches and digital solutions to address specific health and well-being needs. Organizations typically offer anywhere between 4-to-9 point solutions, which may include such things as virtual resources, fertility support, cancer support, and mental health support.
Unsurprisingly, the growing number of solutions has led to point solution fatigue. Members may feel overwhelmed by a growing number of fragmented programs aimed at managing their health, while plans may be unable to measure outcomes from these disparate efforts.
Add to that, many employers have adopted specialty drug carve-outs. Along with other disease-specific care management point solutions, specialty carve-outs leave individuals bouncing among programs that fail to look at the full range of a patient’s health and medication needs. In other words, the highest Rx utilizers tend to be on more than one expensive drug and have more than one condition they’re managing, so treating them for one condition or managing just one drug doesn’t consider the full picture
This leads to suboptimal care, redundant spend, and complex vendor management.
Medicines are the common denominator that underlie individual disease programs and point solutions.
By prioritizing better management of the pharmacy benefit, employers can develop programs that treat the entire individual, rather than just specific diseases. A well-designed pharmacy program can identify safety issues and potential cost savings that might not be evident when employees are placed into other fragmented therapeutic programs.
A comprehensive medication guidance program, for example, may spot potential drug-drug interactions, duplicative therapies, and opportunities for lower cost alternatives.
A comprehensive medication review that uses predictive analytics also may allow providers to reach patients earlier in their disease progression and suggest proactive interventions that can avoid more serious complications.
As mentioned, the pharmacy benefit remains one of the last healthcare categories that can be impacted through thoughtful policies and procedures and meaningful engagement with members to change behaviors.
This is good news. Even though growth in one of the largest areas of spend is poised to accelerate over the next few years, it means plan sponsors aren’t stuck without a way to protect themselves and their members.
When setting out to fix a problem, tapping the right professionals is crucial to success.
Just as primary care physicians are often best suited to quarterback a patient’s issues on the medical side, clinical pharmacists are best positioned to address prescription drug issues on the pharmacy side — whether around clinically-driven utilization management, cost considerations, or both.
Clinical pharmacists and technicians who a) are equipped with technology that uses clinical rulesets and predictive analytics to prioritize their interventions with patients and b) take a proactive and hands-on approach can drive personalized medication guidance to better health outcomes and lower costs.
Steps to achieve this success include establishing goals and trust with patients, meeting them on their terms; evaluating members’ medical histories and other lifestyle considerations to uncover barriers to accessing medications; presenting options to help members choose optimal health paths, so patients are and feel in charge of their own health; and continually supporting members to make lasting behavior changes.
Employers that place a priority on the pharmacy benefit are destined to get a better handle on their healthcare spend with this cross-cutting medication management mindset. The payoff is a healthier and more engaged and productive workforce.
 AHIP, 2021 (based on 2016-2018 figures and not necessarily representative of self-insured employer options, for which data can vary)
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