Pharmacy Pricing Is a High-Cost Chess Game. You Need a Life Master on Your Side.

Viewpoints from Craig Hasday

Affordability is the single biggest issue in healthcare. There is no greater challenge for plan sponsors than managing the cost of pharmacy benefits.

For some groups, pharmacy costs exceed 30% of total cost accruals. Specialty pharmacy is growing faster than the rate of medical inflation, potentially representing 50% of this expense. The pipeline for specialty medications includes treatments with price tags in the six- and seven-figure ranges. For many participants in the health insurance ecosphere, pharmacy is an area where the greatest margin can be achieved since the distribution and component costs are complex and opaque.

Pharmacy is the most frequent access point for most Americans. Drug copays are rising for standard medications, but drug cost-sharing issues are most acute for specialty medications. Many plans have a fourth cost-sharing level for these drugs, which can come with a price tag of over $1 million.

With the prevalence of high deductible health plans, some plan members could face costs in the thousands of dollars for a single, potentially life-saving drug.

As drug manufacturers realize that expensive specialty drugs are simply not affordable for the typical users, a high-stakes chess game is being played out. Pharmaceutical companies have created couponing programs to bring the cost down for the patient. Yet they charge plan sponsors the full cost once member out-of-pocket limits are reached. Plan sponsors have begun taking advantage of these coupons, along with charity and public assistance plans, and may require members to seek reimbursement from other available sources before funding those costs from the employer plan.

Pharmacy benefit managers (PBMs), continue to squeeze drug manufacturers for rebates that are shared with plan sponsors.

For many PBMs, the size of their rebate is trumpeted as evidence of the value they provide in cost management. But the devil is in the details. Most rebate-sharing plans, which have exclusions and limitations, may not steer to the lowest net-cost drugs for a given condition. Understanding these agreements eludes many advisors.

Most PBMs rely on spread pricing for profits.

Some PBMs have asserted that pass-through pricing – directly passing costs and rebates from the drug manufacturer – is the panacea, only charging a fully disclosed administrative fee. But is it the most effective solution? Are those PBMs able to negotiate the lowest costs? Is the drug formulary effectively managed?

The government is catching on, hoping new transparency regulations spotlighting this opaque maneuvering will help expose hidden profits.

The game continues. Pharma manufacturers, PBMs and new players in the system are planning their next moves. We’ll be keeping an eye on the latest developments.

EPIC Pharmacy Solutions, powered by our Pharmaceutical Strategies Group subsidiary, can unpack these variables.

We effectively manage pharmacy costs for health plans and large employers – and through our access program, we are able to demonstrate savings of up to 40% for middle-market plan sponsors when compared to insured plans. You need a capable advisor in pharmacy cost management, and EPIC Pharmacy Solutions is a “Life Master.” There is a lot at stake if your broker lacks the specialized pharmacy knowledge to help keep you ahead of the latest moves.

On Thursday, April 20, our pharmacy experts will be sharing the nuances of pharmacy cost management in our next Benefits Curve: Insights to Action webinar.

Please sign up to learn more about the pharmacy strategies that will make your plan more affordable. It will be EPIC.

EPIC offers these opinions for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this article and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.