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CCH® BENEFITS — 4/8/08

Employer Strategies Helped To Slow Prescription Drug Benefits Cost Increases Since 2000

From Spencer's Benefits Reports: Cost increases for prescription drug benefits of large employers have slowed since 2000 from 18.3% to 9.3% in 2007, due to increased employee cost sharing and expanded use of drug tiers, according to a recent survey from Mercer. Employers continue to explore other strategies to reduce costs, including promoting use of generic drugs, rather than brand-name, and mail-order pharmacies. The results of the survey, which was conducted in May 2007, includes responses from 508 employers with at least 500 employees. Other cost management strategies of interest to employers are medication therapy management or drug treatment compliance programs (21%) and the implementation of onsite or near-site pharmacies for employees (12%).

Nearly half (48%) of respondents use a pharmacy benefit management (PBM) firm to provide prescription drug benefits, but the percentage doing so increases with employer size—34% of the smaller employer groups (those with 500 to 999 employees) up to 70% of the largest employers (those with at least 20,000 employees). For employers with the largest medical plans, 41% have the health care plan or carrier administer the drug benefit. One-tenth of the respondents, up from 6% in 2005, used a pharmacy benefit administrator (PBA), essentially a PBM that provides transparent pricing of drugs. The largest employers also are more likely to use a PBA (15% of these employers), compared with 7% of the smaller employers. PBM use is more prevalent in the South and Midwest regions (54% and 53% of respondents, respectively) and used least in the West (34%). The most frequently used PBMs are the three largest: CVS Caremark (25%), Medco (24%), and Express Scripts (15%). Among the health care plans/carriers most used to administer pharmacy benefits are United HealthCare (15%), Wellpoint (14%), Aetna (12%), and Cigna (10%).

Half of the respondents said that they were likely or very likely to try to negotiate better financial terms with their pharmacy benefits vendor over the next two years, but among the largest employers, that percentage was 69%. About one-fifth of the respondents said that they would consider “carve-in” or “carve-out” of the drug benefit, but health care plan users were more than twice as likely as PBM users to do so (25% versus 12%). Another strategy that likely or very likely will be considered over the next two years is moving to transparent (or pass-through) pricing, being considered by 21% of all respondents, and 41% of the largest employers.

The most common copayment structure is three-tiered (72% at retail and 68% at mail-order pharmacies), but of employers with card plans, 5% of all employers and 10% of the largest employers use four or five tiers. Also growing is the use of coinsurance for at least one category of drug, used by more than one-fifth of all respondents and nearly half of the largest firms. Because it makes drug costs transparent, coinsurance supports efforts to promote consumerism, Mercer noted. More than one-fourth (27%) of respondents said that they were likely or very likely to increase copayments and/or coinsurance over the next two years.

Three-fourths of all respondents, and 84% of the largest employers, said that they planned to further promote use of generics. Nearly half of the respondents already require members to pay the cost difference between the generic and the brand-name drug, in addition to the generic drug copayment; 29% said that they applied this strategy even if the doctor requested the brand-name drug, and another 9% said that they planned to implement this strategy within the next two years. Nearly two-thirds (64%, up from 48% in 2005) of respondents said that they use targeted communications to members and prescribers to educate them about generic alternatives.

In addition, nearly half of the respondents said that they would seek better management of high-cost specialty/biotechnology drugs. The largest proportion of respondents cover these drugs through the drug plans. More than two-thirds (68%) of the largest employers have reviewed their benefits and limits for such drugs, compared with 45% of all respondents, but another 30% planned to do so in 2008. Nearly three-fifths (57%) said that they already are buying these drugs through the most cost-effective channels, while 28% said that they planned to seek more cost-effective purchasing channels for 2008. Nearly half (49%) said that they have effective clinical case management in place for specialty drugs, and another 15% thought that their clinical case management was not effective.

Only 6% of employers use financial incentives for diabetes treatment, but 26% are considering implementing such a program in the future. Approximately one-fourth of employers are considering the same approach for other therapeutic classes used to treat chronic conditions such as high cholesterol, asthma, and high blood pressure. A slightly smaller percentage of employers now waive or reduce copayments for specific classes of drugs, contingent upon the member’s participation in a related disease management program, the Mercer report observed. This incentive most commonly is used by employers for diabetes management (4%), and about one-fourth of all respondents said that they were weighing this approach.

More than three-fourths of the respondents (77%) offer members copayment incentives to obtain their maintenance drugs from the mail-order service pharmacy, while some employers penalize members when they fail to do so—in those circumstances, 6% require additional copayments after a specified number of retail fills, and another 10% will not cover retail fills at all. Another 13% of employers use no mail-order incentives or penalties.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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