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Prescription Drug Benefits

By January 2, 2015Commentary

While growth in prescription drug spending has slowed along with the decline in overall health spending growth, the category still accounts for a significant fraction of costs.  The Pharmacy Benefit Management Institute issues an annual report on trends in prescription drug benefit design.  This year’s report is based on a survey of 353 employers.   (PBMI Report)   One big picture trend is the ongoing growth in complexity of drug benefits, with a widespread increase from three to four tiers of benefits, more utilization management, and greater use of preferred pharmacies.  While almost all employers include access to mail-order pharmacies in their benefit, probably because most PBMs own them, the percent of employers mandating use of mail-order for maintenance medications, those for chronic diseases, is declining.  At the same time, more companies are including the option of getting maintenance medications filled at retail pharmacies, although often a preferred pharmacy must be used.  Overall, about half of employers are using a preferred network design in which members pay a lower cost-share for going to the preferred pharmacy.  Around 14% of firms are using a limited network, which means that only a defined, smaller set of pharmacies are available at all.  The advantage of a limited network is presumably lower charges by the pharmacies remaining in the network.

Cost-sharing for drugs has become very complex, with deductibles and benefit maximums being used by a few, but almost all having multiple tiers of copayments and/or coinsurance.  Usually the tiers include generic drugs, often available with no cost-share, preferred brands, non-preferred brands and specialty drugs.  Overall respondents said that members of the plan pay about 24% of total drug costs.  This can vary depending on where the prescription is filled, with mail typically having slightly lower cost-sharing.  Specialty drugs have a lower cost-share on a percent basis, but in absolute dollars, it is much higher.  About 30% of respondents are now using four tier designs and about 30% are also now using coinsurance rather than copays.  The amount of a copayment can vary widely across plans, but the average in a three-tier design is around $11 for a 30-day generic prescription, $30 for a retail preferred brand drug and $54 for a non-preferred brand.  Mail-order copays are typically slightly lower in each tier.  In a four-tier design, where specialty is the fourth level, the average 30-day copay is $132.  Coinsurance amounts average 23% for 30-day generics, 27% for preferred brands and 40% for non-preferred brands.  Not trivial amounts and some prescriptions are likely abandoned due to these costs.  Copayments and coinsurance amounts have been generally stable over the last three years.  Value-based approaches to drug benefit design, such as lowering copays for chronic disease medications, have not been spreading, in fact their use may be slightly declining.

Utilization management techniques are very common, although their use may vary by drug class.  The most common approaches are prior authorization, step therapy and quantity limits.  Controlled substances have become a focus of greater utilization management controls, as the problem of abuse has become widely recognized.  Reference-based pricing has gained some attention on the medical benefit side for procedures like joint replacements.  12% of employers say they are now using this approach in regard to some medications.  Categories most likely to be subject to step therapy include rheumatoid arthritis, lipid-lowering, depression and heartburn.  Employers also indicate widespread use of educational and clinical management programs, such as medication adherence, disease management and prescriber profiling.  But most of these involve a mail or phone interaction, where effectiveness is unclear.  There has been little change in the methods used in pricing of ingredient cost or the level of discounts or rebates.  And dispensing fees have also been stable.  This group of respondents reported a fairly flat cost trend in the last two years of less than 3%, but specialty costs are increasing at a double-digit rate while traditional medication costs are actually declining slightly.

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