Designing and Negotiating Affordable Pharmacy Benefits

Get practical strategies for managing pharmacy costs

Plan sponsors can combine four strategies to make prescription drug benefits more sustainable without losing sight of participant needs:

• Rethink benefit design to improve value and transparency. Traditional fixed-dollar copayments can obscure the actual cost of drugs and weaken incentives to choose lower-cost treatments. A rebalanced, tiered design can align participant cost sharing with the clinical importance and value of different therapies. Preventive drugs may remain available at no cost, while major or lifesaving therapies can have affordable percentage coinsurance and out-of-pocket maximums. Minor or elective therapies with generic or over-the-counter alternatives may carry higher coinsurance.

  This approach can increase generic and over-the-counter drug use, improve price transparency, reduce waste and preserve stronger coverage for serious conditions. Compared with typical fixed-dollar copayment designs, this design can save from 10 to 15 percent in claim costs incurred before rebates.

• Negotiate stronger PBM contract terms. PBM contracting has become increasingly complex. Beyond conventional ingredient-cost discounts, rebate guarantees and administrative fees, plan sponsors should seek terms that align incentives, increase transparency and reduce opportunities for financial commitments to be weakened by exclusions, offsets or later adjustments.

  Consider minimum percentage rebates on allowed brand-name drug charges. limiting rebate clawbacks, exploring risk-sharing arrangements, per-member-per-month pricing, guarantees for generic dispensing rates and including service guarantees for call centers, refills, prior authorizations, pharmacy networks and financial reconciliations.

• Be disciplined about formulary and clinical management. Efficient preferred-drug formularies, step therapy and prior authorization can reduce use of high-cost, low-value brand-name drugs when effective lower-cost options are available. Value formularies may reduce prescription drug benefit costs by 5 to 10 percent when supported by appropriate clinical expertise.

  Other strategies include opioid-management programs, support for rare-disease patients, greater use of biosimilars and targeted management of GLP-1 drugs for weight loss.

• Commit to ongoing oversight. Quarterly monitoring and annual audits can help identify pricing mistakes and important outliers early. Larger plans may also benefit from dedicated clinical pharmacy expertise to monitor PBM decisions and develop plan-specific solutions.

For more information about these Rx cost-management strategies, read the article

Download the article with permission from the International Society of Certified Employee Benefit Specialists, the publishers of Benefits Quarterly.

It includes a table that outlines a new tiered drug coverage design for prescription drug therapies.