The United States spends over $3.6 Trillion on healthcare every year. It’s well studied and widely held that up to a third of all healthcare spending is pure waste – either we’re spending on unnecessary care that is harmful, provides no value, or both; or we’re overspending on care that is necessary. In short it is both a consumption problem and a unit cost problem.
The good news is that healthcare is already fixed. In pockets across this fine nation there exist ample examples of employers that have cracked the code and are spending up to 50% less on their healthcare bill than everyone else and they are providing incredible benefits to boot. Wise employers have discovered that the path to spending less is providing more. The even better news is that there exists a pattern. A common set of principles and strategies that these wise employers have adopted. The fixes are replicable. Employers that continue to struggle with their healthcare budget need not re-create the wheel but simply copy what is already working.
This post is Part 2 in our series on Fixing Healthcare: Eliminating Rx Waste. Part 1 discussed Direct Contracting and can be read here.
ELIMINATING RX WASTE
What if your business’s employee health plan was covering a drug that cost $350 when there was a comparable alternative that would cost you $13?
If that seems like a bit of a waste to you, you aren’t alone. A guidebook called “Removing Waste From Drug Formularies,” produced by the Pacific Business Group on Health and researchers from Johns Hopkins University, has brought a lot of attention to “wasteful drugs,” by giving 49 medications that very label. Earning the title are drugs that the group has identified “don’t provide additional clinical value when compared to other drugs that are used for the same condition which are less expensive.”
The guidebook also breaks down four main categories of wasteful drugs: Multi-Source, Fixed-Dose Combination, Over-the-Counter Available and Me-Too drugs.
Multi-Source drugs are high cost branded or generic products when less expensive alternatives are available
Fixed-Dose Combination “Combo Drugs” have two or more active ingredients in one pill, costing substantially more than if the ingredients were sold in separate pills
Drugs for which over-the-counter (OTC) options are available
Me-Too drugs bear an inconsequential tweak to a particular ingredient that results in a “new,” more expensive drug, adding no clinical value compared to the original
According to data compiled by Bloomberg from Symphony Health, “the medications outlined in the guidebook accounted for more than $6 billion in U.S. retail drug spending in 2019.”
So, with nearly 50 drugs making the so called “waste list,” meaning nearly 50 drugs with at least one less expensive alternative, why do they continue to be included on formularies?
Senior director of member value at Pacific Business Group on Health, Lauren Vela, believes it has something to do with what’s to gain. “There are so many folks making so much money on the existing system that the folks who really know how the system works don’t have an interest in changing it.”
Here’s an example of a drug that has a therapeutic alternative and the price difference:
The guidebook expands on this, explaining one instance of how “the revenue model where Pharmacy Benefit Managers (PBMs) keep a portion of the spread, rebate or other fees paid by drug makers creates a financial incentive for PBMs to prefer drugs with high prices, large rebates or large spreads.”
Pharmaceutical companies and PBMs, as expected, are pushing back.
Katie Koziara, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, said her group favors reforming the rebate system “to help correct PBMs and payers’ misaligned incentives.”
Greg Lopes, a spokesman for the Pharmaceutical Care Management Association argued, “PBMs are the only entity in the supply chain reducing drug costs for consumers.”
It isn’t always easy to tell if a PBM is receiving an incentive from the party they’re negotiating with on your business’s behalf. And it’s possible that despite countless discounts and rebates, you could still be missing out on lower cost alternatives.
So, what can you do?
Identify Wasteful Drugs
The physicians and pharmacists from Johns Hopkins University, Integrity Pharmaceutical Advisors and Pacific Business Group on Health recommend using their list from the guidebook to request an output report from PBMs or consultants to identify opportunities for savings.
Optimize Your PBM Relationship
The guidebook also recommends three alternative contracting approaches to reduce waste: Fee-Based Modal, Transparency and Formulary Flexibility.
100% of rebates and all other manufacturer payments, obtaining revenue exclusively from fees charged to the employer.
Transparency: The PBM’s contract with the plan sponsor allows full access to their utilization and spending data, as well as the ability to audit all contracts between PBM and pharmacies/manufacturers.
Formulary Flexibility: Plan sponsors have flexibility to customize the formulary and clinical programs in order to meet needs of beneficiaries per the contract between them and the PBM.
Achieve Savings & High Member Satisfaction
Measure the success of a “waste-free” formulary by the savings obtained and the satisfaction of your employees.
While the crusade for transparent costs, revenue model reform and cutting company drug spend continues, it might be time to take a closer look at your business’s health plan costs and what “waste list” drugs you might be able to swap.
