Fight the Increasing Costs of Pharmacy Benefits with a Guarantee

It doesn’t take a financial genius to realize that pharmacy benefit costs are still soaring. Although yearly increases have declined by nearly nine percentage points since their high of 19.5 percent in 2003, most analysts still project double-digit growth rates for 2008. [1] And while some brand drug utilization is shifting to therapeutically equivalent generic drugs because of patent expirations and better pharmacy benefit management, brand drug inflation continues to be a major trend driver due to the ongoing focus on development and marketing of biotechnology or specialty drugs. With more new “blockbuster” drugs hitting the market place and large pharmaceutical manufacturers spending more and more on direct-to-consumer advertising (an estimated $4.8 billion in 2007 [2]), it’s no surprise that prescription benefit costs remain beyond control and predictability. Wouldn’t it be nice to know exactly what your monthly pharmacy benefit cost will be for an entire year? Imagine writing your prescription benefit budget in ink a year in advance!

A Word About Trend
What is drug cost trend? Trend is defined as the forecasted change in per-capita claims cost year-over-year. In other words, trend is the anticipated increase in annual drug expense and therefore, plan benefit costs. Many factors influence trend including:

• Price inflation
• Cost-shifting (moving the expense from employer to insurer to member and any permutations or additions to the chain)
• Changes in utilization (e.g. prescriptions per member per year)
• The emergence and practice of more expensive drug therapies, including biotech drugs
• Government-mandated benefits and other legislative actions
• Technological changes and their effect on the focus and intensity of care

As mentioned in the introduction of this article, trend rates are expected to be lower in 2008, which is indisputably very good news, but that rate is still high considering general inflation rates in 2007 were at about 2.4% [3]. Therefore a plan experiencing a 10% trend can expect to pay more than four times the general inflation rate for the same products and services year-over-year.

A Cry for Help
When iGATE Corporation – a midsized employer group in Pittsburg that specializes in information technology systems and services – chose RxAmerica to manage their pharmacy benefits, they were experiencing double-digit trend rates each year and their pharmacy benefit costs were well beyond allocated budget figures. They needed customized benefit management help and were looking for a contract that would provide predictable costs.

RxAmerica’s benefit management strategy began with identifying and isolating the factors that were driving their drug spend such as formulary and benefit design, generic drug utilization and physician and member communication. An intense focus was placed on medications that actually cause inflation such as brand-name medications that have no generic equivalent and high-cost specialty medications. Finally, recommendations were made and programs implemented that strongly encouraged and rewarded generic and over-the-counter drug utilization. For example, customized prior authorization and step therapy programs were added to target high-cost drugs that have a potential for misuse or may be prescribed for non-FDA approved conditions. The result was a financial win for iGATE. A step therapy program that targeted generic substitution in only three drug classes; antihistamines, proton pump inhibitors and antidepressants, yielded $50,000 of drug-cost savings over the previous year, and that was only a portion of the value iGATE experienced.

With all of these customized measures in place to truly manage the plan’s pharmacy benefit, RxAmerica was able to address iGATE’s second request: benefit expense predictability and a way to reduce trend rates. Analyzing the plan’s historical drug spend and taking into consideration the new program controls and customized formulary, RxAmerica presented SecureSpend™, a benefit management program based on a per-member-per-month (PMPM) agreement. Once an agreeable PMPM was established it was up to RxAmerica to manage the plan’s pharmacy expense.

For three years running, RxAmerica has maintained a 3.4% PMPM net drug cost trend year-over-year for iGATE, including specialty drug costs. Excluding specialty drugs from the savings, iGATE experienced a PMPM of $11.30 which the plan’s consultant expressed is unheard of in the industry. In response to their program’s success, Senior VP and Chief Financial Officer, Michael J. Zugay stated, “RxAmerica has really taken us to the next level of controlling our pharmacy benefit program and offered us the additional advantage of expense predictability. The predictability of benefit program costs and superior account management creates the perfect partnership for control and savings.”

The successful implementation of these initiatives relied heavily on two very important elements: plan administration buy-in and comprehensive member communication. Since every facet of the benefit strategy was designed to meet the company’s unique needs, RxAmerica worked in collaboration with the plan to achieve administrative buy-in. A proactive and responsive account management team made sure that clear, concise and constant communication kept members and providers up-to-date with new programs and formulary changes.

For the second example, we go to the southwest to the third largest power and utility company in the nation. Salt River Project (SRP), located in Phoenix, AZ employs five times the number of employees as the previously detailed group and was faced with the same challenges. They were looking for a comprehensive pharmacy benefit design with cost and quality efficiency. They were also interested in applying a more member-centric philosophy that would offer the lowest net costs to both plan and member. Further, they were interested in partnering with a PBM that would be proactive and innovative in addressing the plan’s changing needs while avoiding undesirable surprises in their budgeted program costs.

RxAmerica’s approach to finding a solution to SRP’s challenges began with developing a formulary to align with their expectations; one that would provide the right mix of name-brand medications for optimal rebate capture and therapeutically equivalent generic drugs to maximize overall drug-cost savings. Next, RxAmerica looked at a way to incentivize or reward the use of generic drugs, while allowing brand-name drug coverage for members and providers who prefer brand over generic. Through a multi-tiered copayment design with at least double digit differential between tiers (i.e. $15, $30, $60), members were encouraged to ask their providers to prescribe generic alternatives and were rewarded for doing so with lower copayments. Members and providers who insisted on more expensive brand name drugs had coverage access, but absorbed the cost differential in higher copayments instead of the additional costs going to the plan.

The final challenge was bringing consistency to their anticipated program cost year-over-year. Combining these measures with a SecureSpend™ guaranteed PMPM helped the plan maintain a net drug cost trend of 3.6% each year, and an annual program savings of $500,000! As with the previous example, member and provider communication was paramount to the successful implementation of these cost-conscientious programs. The application of these targeted benefit management strategies resulted in a more cost-conscious benefit design, a welcomed level of expense consistency to the plan, and additional out-of-pocket savings to its members.

A Secure Approach
For iGATE and Salt River Project, RxAmerica’s SecureSpend™ program offers more than just a guarantee. It provides an aligned partnership with a trusted advisor who has the client’s bottom line in mind. We reviewed 18 to 24 months of each plans’ data and applied targeted clinical programs, comprehensive plan management tools, and proven member/provider education techniques to secure the annual pharmacy benefit spend on a per member per month basis. Once the monthly value was determined and agreed upon, we aligned our actions to each plans’ unique needs. Both plans have been able to figure the costs into their yearly budget without worrying it will be swallowed up in escalating trend.

Lowering the Overall Costs
As detailed above, RxAmerica proposed customized steps the two plans could take to lower their overall PMPM and yearly drug benefit costs. Such measures included moderate to aggressive step-therapy programs to target the higher-utilized drug classes. The application of a multi-tier copayment design focused on increasing generic dispensing rates also helped reduce plan costs and minimize member out-of-pocket expense. Their formulary designs were optimized and costs were reduced by having the right mix of generic utilization, brand drug rebate capture and a pharmacy benefit manager they could trust to manage that mix. The key to the success of these cost-saving strategies was and is open and ongoing communication with plan members and health care providers. Our dedicated account management staff and knowledgeable clinical consultants made sure each plan received maximum buy-in from both important parties through ongoing communication initiatives, customized formulary management and physician detailing.

Client GPS (Guiding Proactive Solutions)™
Just as a global positioning satellite system can navigate someone though unfamiliar territory, RxAmerica’s exclusive client management program (Client GPS™) continues to play an essential role in the success of our customers like iGATE and Salt River Project. The program was created to guide our clients through the difficult landscape of prescription benefit management. Through hands-on, careful monitoring of their plans’ benefit design and performance, our proactive account management teams provide more than just basic account management and crisis resolution. RxAmerica’s account management team guided iGATE and Salt River Project through each step of the way–from the conception of the plan design, and on through implementation, quarterly plan evaluations, contract renewal and beyond. Their account managers are reliable consultants who keep them up-to-date with changes in their plans’ benefits and changes in the pharmacy benefit landscape.

Unlike a Box of Chocolates, You Can be Sure of What You’ll Get
RxAmerica’s SecureSpend™ puts our customers in control of their pharmacy benefit costs with a pharmacy benefit management partner whom they can depend on to manage and minimize rising drug costs and escalating trend.

RxAmerica is a leading manager of pharmacy benefits. We deliver innovative, targeted and customized programs to lower and control drug costs for our clients while improving the health of their members. Over eight million individuals receive prescription benefits and services through our retail network of 60,000 pharmacies and our industry leading mail order pharmacy. RxAmerica is also a premier provider of Medicare Part D plans, offering national PDP and customized MA-PD partnership solutions. To find out more about this and other customized cost-savings strategies, please contact us a sales@rxamerica.com or visit us on line at www.rxamerica.com.

References:

[1] 2008 Segal Health Plan cost Trend Survey
[2] Competitive Media Reporting/ Taylor, Nelson, Sofres Media Intelligence Figures
[3] United States Department of Commerce Website www.commerce.gov