Three strategies for controlling pharmacy benefit costs: effective auditing, innovative plan design, and increased focus on controlling aspects of member behavior can set the stage for reducing future cost trends in pharmacy plans.

• Author: Malhotra, Ritu
• Position: Solutions

As public-sector health plan sponsors struggle with increasing pharmacy plan costs, effective auditing, innovative plan design, and increased focus on controlling aspects of member behavior can set the stage for reducing future cost trends. Most health plan sponsors work with a pharmacy benefit manager (PBM) that processes their pharmacy claims and assists them with other administrative aspects of offering a pharmacy benefit (i.e., plan design application, clinical programs, formulary development, providing mail-order pharmacy access). As the market evolves, PBM capabilities present both challenges and opportunities for plan sponsors. Effective auditing techniques can help ensure that plan sponsors and members pay competitive market prices for drugs and eliminate excessive PBM profits. Innovative plan design seeks to eliminate financial barriers to drug therapies that have been shown to provide therapeutic value and be cost effective. Examining potential fraud and abuse patterns within a population fulfills a fiduciary responsibility and may improve overall member health and productivity in instances where corrective measures and counseling can be put in place.

EFFECTIVE AUDITING

Electronic claim audits of PBM data are the cornerstone of an effective pharmacy benefit management program. A plan sponsor should use these audits as opportunities to measure the financial performance of its PBM and to update contract language to remove hidden PBM profit drivers that can increase plan costs. One such opportunity, which can deliver savings to both plan sponsors and members, is the language used to define generic drugs, which is discussed below.

The evolving nature of the PBM industry demands frequent examinations of data and financial terms to facilitate PBM negotiations and contractual updates. As part of a thorough audit process, a plan sponsor must carefully review and scrutinize its PBM's financial contract terms and compare them with existing benchmarks and standards to ensure they are receiving the maximum cost benefits from items such as generic drugs. Due to the complicated and somewhat mysterious manner in which generic versions of brand-name medications enter the marketplace, murky PBM contractual definitions of brand versus generic medications can have a profound impact on plan and participant costs.

The primary reason for much of the confusion is the six-month exclusivity period provided to the first generic drug manufacturer that successfully challenges a brand drug manufacturer's patent. This rewards the manufacturer with the sole right to distribute its generic equivalent for six months, in essence preventing competition--and typically makes the price of the generic drug only slightly lower than that of the brand drug. After the exclusivity period, other generic manufacturers usually enter the market and prices often plunge, creating savings opportunities for both plan and participant. Most PBMs refer to generic drugs within their six-month exclusivity period as "single-source generics" and specifically exclude them from their generic discount guarantees, or worse, include the single-source generic claims in the brand discount guarantee, which can artificially inflate the calculated discount.

Lack of a consistent, industry-standard method of coding medications as brands or generics, the six-month exclusivity period, and loosely defined contract terms are the crux of the problem. As more brand-name medications lose patent protection, these issues become increasingly prevalent and contribute to the confusion in pharmacy benefit pricing. Plan sponsors should consider installing contractual revisions that are designed to isolate and separately guarantee...