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What Comes in a Bottle but Is Hard to Control?

By Brian Schilling

The average U.S. company spends about 12.6 percent of its health care dollars on pharmacy costs.1 Chances are, not all of that money is well spent. Some of it will go toward prescriptions that are not used, are ineffective, or are simply more expensive than other equivalent alternatives. Since 2006, the Midwest Business Group on Health (MBGH) has offered a comprehensive, two-day Pharmacy Benefits Academy (PBA) to help employers address these and other pharmacy-related issues. This year's conference was held August 19-20. Purchasing High Performance talked with MBGH President and CEO Larry Boress and other PBA presenters at the conference to get their advice on selecting a pharmacy benefits manager and controlling pharmacy costs. They offered the following recommendations:

Know how your pharmacy benefits manager makes money and ask them to share.

The fees your firm pays to a PBM for its services may only be one of many sources of revenue. Consolidation in the PBM industry has left three companies—Caremark, Express Scripts and Medco Health Solutions—in control of the lion's share of the market. Because of their size, each of these companies can negotiate deep discounts on drug prices. That sounds like a good thing, and it is, says Boress, but be sure that your firm reaps the benefits. Is your PBM passing along those discounts? How are they calculating the average wholesale price of drugs? Do they receive any other rebates or incentive payments from manufacturers? Are those payments shared with your firm? Does the PBM sell data to a third party? It's fine to ask the PBM to disclose these payments, but better still, ask them to share them outright. If you don't ask," says Boress, "they're not going to offer."

Set performance targets.

Knowing what you want out of your PBM before you select one is key to a strong, long-term relationship, says Boress. In particular, you should know what sort of performance targets you expect the PBM to achieve. "Any PBM can give you summary cost data for your covered population, but even if that number is going down, that's very different from meeting a meaningful performance target," he says. "To be an effective, aggressive manager of pharmacy costs you need more information than cost data."

Meaningful targets could include:

  • per-member per-month costs
  • percent of covered members receiving certain kinds of prescriptions who receive a follow-up call
  • percent compliance with treatment regimen
  • percent of members offered a generic substitute
  • percent of members who switched to generics
  • percent of members who signed up for home delivery of medications

There are dozens of other such metrics, says Boress.2 Together, they can help ensure that the PBM is engaged in the sorts of activities that will keep costs down and make employees healthier. Such metrics can also identify opportunities for further cost reduction or alert managers to pending problems. "Cost-reduction targets may actually be the least helpful metric," says Boress. "It's entirely possible that a given company will be better off if it spends more on pharmacy costs, not less. Every company is different."

Fight noncompliance.

When people don't take their medications, it doesn't save money. Just the opposite, in fact. Those patients who either don't take or don't finish taking their medications and end up in the hospital are expensive. According to one study, the estimated annual costs of patients not taking their medications is about $300 billion in terms of increased hospitalization and higher medical costs. Worse, about 350 people die every day due to poor medication adherence.3 Boress and his group found that, in their region about half of patients who received a prescription never filled it and of those that did, another 50 percent never appropriately refilled their scripts. This undermines the efficacy of pharmaceuticals and can increase long-term costs in many cases.

To fight noncompliance, engage your PBM, says Boress. Those performance targets are a start, but make absolutely sure that the PBM is engaged in corresponding programs to ensure that people who get certain kinds of prescriptions also get follow-up calls and other support to increase compliance. In addition, consider the following issues: Are follow-up visits scheduled right away? Are people directed to appropriate Web and other resources? Boosting medication compliance can also involve fine-tuning your benefits—are copays low enough? Should they be zero, in some cases?

Don't expect generics to be the answer.

According to data from one insurer, the average savings for switching from name brand to generic equivalent across the 25 most common prescriptions is 52 percent. For example, the generic equivalent of one sleep aid costs 4 percent as much as its name-brand counterpart. Pushing generic equivalents is a core art of any successful effort to control pharmacy costs, says Boress. But it is possible to push too hard—generics don't work for everyone. "Even when two things are chemically equivalent, there are differences: in packaging, pill size, coatings," says Boress. "These things make a difference and generics just won't work for some patients." For that reason, Boress cautions against a "generics-only" formulary.

To the extent that generics are an option, says Boress, it's important to get people to try them before a comparable name-brand drug. Some PBMs can coordinate with manufacturers and physicians to ensure that free samples of generic alternatives are made available in physicians' offices. "That's the sweet spot," says Boress. "Once people try something and get used to it and like it, they're much less likely to switch. If I give you a generic after you're already on something and like it, are you even going to try it? Probably not."

Focus on specialty drugs.

The cost of specialty drugs (i.e., complex drugs that require special handling and patient-specific dosing) is staggering. One oral cancer medication costs $75,000 per patient per year. Another drug to treat a rare blood disease costs $200,000 per year. Dozens of other specialty drugs run $2,000 to $3,000 per month. Consequently, it is important to pay extra attention to patients on such medications. The last thing you want is for $3,000 per month in medication costs to go to waste. In particular, Boress favors compliance support programs with features like:

  • monthly calls from a care coordinator to ensure patients are taking medications and following their treatment plans;
  • 24/7 access to a nurse or pharmacist hotline;
  • educational materials; and
  • home delivery of medications.

It may also pay to stay abreast of comparative effectiveness research. Recently, researchers found that low-cost diuretics were more effective at treating certain heart conditions than were much more expensive drugs. While there's no guarantee that such findings will be translated into your formulary, make it known that you expect your formulary to reflect the findings of ongoing comparative effectiveness research.

Benefits managers may also want to consider taking courses that focus on managing the cost of specialty drugs, such as the one offered by the Pharmacy Benefit Management Institute:

Related resources:
Save the Date! Next year's Pharmacy Benefits Academy will be held September 20–22, 2011 in Rosemont, Illinois.

To learn about purchasing the Pharmacy Benefit Management Institute's member satisfaction rankings and profiles of 14 of the nation's largest PBMs, see:

For the NBCH/URAC pharmacy benefit manager purchaser's guide, see:

1, data from the Organization for Economic Cooperation and Development, June 2008.

2 See the URAC PBM Purchaser’s Guide for additional metrics:

3 Journal of Managed Care Pharmacy, Supplement, July 2008, Vol. 14, No. 6-b, Continuing Education Activity

4 BlueCross BlueShield CareFirst Web site, “Brand vs. Generic Drugs,”

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