An Introduction to Pharmacy Benefit Management

Posted on Monday, May 20, 2019

If you are involved in human resources or looking to control health care expenditures, it's time to consider pharmacy benefit management practices. The $140 billion/year prescription drug industry is a major cost center for employers: According to the Society for Human Resource Management (SHRM), 71 percent of employers in the United States spend at least 16 percent of their total health care budget on prescription drug/pharmacy benefits.

Consider further: In the 1980s, pharmacy benefit plan costs represented just 3 percent of employer-sponsored health benefits expenditures. Fast forward to 2014, and pharmacy benefit plan expenditures make up an average of 18 percent of plan costs.

You can provide a lot of value to employers and employees alike by grasping the fundamentals of controlling costs while still delivering this important health care benefit to plan participants.

According to SHRM, 61 percent of United States employers now use pharmacy benefit manager firms to administer their pharmacy benefits - up from 47 percent in 2009.

Since prescription manufacturers are aggressively marketing for usage of their pharmaceuticals, Americans are demanding higher numbers of prescriptions from their doctors and nurse practitioners. When the medications work as intended and are not overused, this is a good thing. But self-funded employers are finding themselves under rising financial pressure: We want these benefits utilized, but not over-utilized, to the point they become unaffordable.

Role of Pharmacy Benefit Management Companies

That's where pharmacy benefit management companies come in. These firms act as the "middlemen" attempting to satisfy drug distributors and manufacturers, on one end and employers and their workers on the other.

So how are they helping to control costs?

According to SHRM, 9 out of 10 pharmacy benefit management companies use formularies to help control costs. That is, they restrict coverage to specific medications and prescription drugs, or restrict coverage to drugs used for "off-label" purposes.

They also try to steer workers to opting for generic drugs, where available, rather than more expensive brand-name drugs.

Other specific tools and cost-saving measures include employee assistance programs, disease management programs, and a wide variety of wellness programs designed to help employees lose weight, quit smoking, be more active, or take any number of other actions that could help them reduce their risk of developing health problems.

Specialty Drugs

A very large percentage of drug expenditures are accounted for by just a few more expensive drugs such as those developed to treat cancers, hepatitis, HIV/AIDS, and a few other diseases. Some of these drugs can cost thousands of dollars per prescription. Observers anticipate that these highly complex and expensive specialty drugs - taken by just 1 percent or so of the work force, may represent over 30 percent of drug costs within the next few years. This is where good prescription benefit management can yield substantial dividends for employers. Again, according to SHRM:

35 percent of employer-sponsored plans require those taking these highly expensive specialty drugs to work with case managers to help discourage needless or wasteful usage.
39 percent use centralized distribution to help control prescription costs.
34 percent make use of step-therapy protocols
45 percent of programs use utilization management to control costs.

As a result, it's common for pharmacy benefit management companies and their negotiators to more than earn their fees by reducing the plan sponsor's exposure to plan risk and by delivering substantial benefits to the bottom line.

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Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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