BENEFITS BUSINESS
Attacking rising health care costs one piece at a time can pay dividends
By Len Strazewski
The quickest way for a small to medium-sized business to begin managing prescription drug costs is to carve out its pharmacy benefits from its health plan and assign management to a Pharmacy Benefit Management (PBM) company.
It's easy to be overwhelmed by the rising tide of employer health care costs, increasing at more than 14% last year. But some employers are taking the advice of their high school math teachers by breaking the big problems into smaller, more manageable exercises.
Prescription drugs account for less than 20% of all employer health costs, but they are among the most volatile, rising at a faster rate than other cost components, according to employee benefits consultants.
For the second consecutive year, prescription drug costs are projected to increase at about 20% in 2003, according to the 2003 Segal Health Plan Cost Trend, an annual employer survey conducted by The Segal Co., a New York-based employee benefits and human resources consulting company.
Fueling the increase is about $3 billion in direct-to-consumer advertising of prescription drugs in 2002, which consultants say led to a 32% increase in expensive brand name drugs. Also contributing to drug costs are expanded "prescribings" to younger patients for asthma, allergies and infections, which have increased nearly 600% since 1997, according to prescription drug industry research.
How can agents and their clients take control over these booming costs?
The quickest way for a small to medium-sized business to begin managing prescription drug costs is to carve out its pharmacy benefits from its health plan and assign management to a Pharmacy Benefit Management (PBM) company that can apply a wide range of vendor controls, plan design changes and clinical medical control to the benefits, explains Sean Brandle, vice president of The Segal Co.
Leading PBMs include AdvancePCS in Irving, Texas; Caremark Rx in Northbrook, Illinois; Express Scripts in Maryland Heights, Maryland; and Medco Health Solutions in Franklin Lakes, New Jersey. Several of the largest health plans such as Aetna Health in Hartford, Connecticut;, and CIGNA Health in Philadelphia, Pennsylvania, also offer PBM services to insured and self-insured plan sponsors.
"Most employers with more than 500 employees are already using PBMs to manage some portion of their prescription drug benefits--even if it's just issuing prescription drug cards and managing co-payments. However, many smaller companies have yet to separate out these costs and continue to rely exclusively on their health plan," Brandle adds.
"It's pretty clear, however, that PBMs can be effective in managing these costs. So if an employer hasn't contracted with a PBM, it probably should, and review its prescription drug benefits strategy."
This situation could also provide an opportunity for agents and brokers who specialize in health insurance and employee benefits. As client employers turn to their agents seeking advice on managing their overall health care costs, agents should be able to help them analyze the various components of their benefits plan.
If prescription drug costs reflect an increasing portion of their client's costs, or if drug costs are rising at a faster than average rate, agents should be prepared to recommend an independent PBM and some cost management strategies. The Segal Co. also recommends that clients review PBM relationships every two years.
PBMs are taking a multifaceted approach to managing prescription drug costs, and employers can pick and choose among them to match their own philosophy and benefits strategy, notes Brandle.
PBM services include:
* Retail pharmacy network management. PBMs negotiate network discounts with pharmacies within the employment service area. The smaller the network, the bigger the discount.
* Mail-order pharmacy services for non-emergency prescriptions. Discounts average 10%, a portion of which can be returned to the employer.
* Tiered formulary and coinsurance. PBMs help employers structure plans that provide financial incentives for using generic and preferred brand name drugs.
* Special features, including pre-authorization for very expensive or highly abused drugs and benefit caps and fill limitations on non-essential drugs such as Viagra.
PBMs are also using the Internet to deliver consumer prescription drug information aimed at assisting plan participants with understanding their drug needs and using their prescription drugs safely. Most PBMs already provide drug information Web sites for their plan participants, but the sites continue to evolve, offering more carefully targeted information.
For example, late last year CIGNA introduced PharmaAdvisor, a prescription drug component of its MYCIGNA.com Web site. The new site allows prescription drug plan participants to make side-by-side comparisons among prescription drugs and compare out-of-pocket costs between generics, brand name drugs, and preferred brand name drugs.
"Patients can then use this information to have truly informed conversations with their doctors about the drugs they are being prescribed and their real costs," notes David A. Finkel, senior vice president at CIGNA Health. "This isn't a cost control program specifically, but rather an information tool that we believe will help patients become better consumers--and take more charge of their health."
Do these techniques work?
PBMs report varying degrees of success ranging from actual reductions in overall costs to amelioration of the rising trend. Medco Health launched a strategic attack using the most aggressive techniques that led to about 60% of its client employers experiencing an actual drop in total costs, while about 33% of client companies reported increases of less than 10%--about half the national average.
What do clients think of PBMs and their ability to control prescription drug costs?
The Pharmacy Benefit Management Institute (http://www.pbmi.com) in Tempe, Arizona, a PBM trade group, regularly surveys PBM customers about their satisfaction with pharmacy benefit managers. The organization also hosts a national directory of PBMs, which agents can use to locate companies serving their area.
The 2002 Pharmacy Benefit Manager Customer Satisfaction Report, released late last year, polled 662 employers representing a total of 13.3 million employees. The overall evaluation: they're not perfect, but the longer their relationship and the more aggressive measures they take, the more employers acknowledge the value of their PBM, according to PBMI President Michael H. Deskin.
Respondents also rated independent PBMs with whom they have a direct contract higher than PBMs that are part of a single health plan or third-party administrator contract.
On average, employers rated overall service and performance of PBMs 7.6 on a 10-point scale, but employers that have contracted with PBMs for three years or more rated the service more highly at 8. Contractual relationship also clearly relates to satisfaction. Employers with direct contracts to PBMs rated the service 7.8, compared to 7.2 for plan contract PBMs. Employers also valued more aggressive intervention in controlling drug costs. Employers taking a minimal intervention strategy with PBMs rated their service companies only 7.2 while more employers that allowed more aggressive strategies rated PBMs 7.8.
Among the individual services provided by PBMs, retail pharmacy networks were perceived as most successful, rated 8.7, followed by more efficient claims processing, 8; plastic identification cards and mail-order pharmacy fulfillment, 7.9. Disease or health management programs, the newest set of services, ranked lowest, only 6.8. *
The author
Len Strazewski has been covering employee benefits issues for more than 20 years and is employee benefits editor of Human Resource Executive magazine. He has an M.A. in Industrial Relations from Loyola University.