Prescription Benefit Design: Perspectives, Reimbursement Issues, and Future Trends

Designing an effective pharmacy benefitrequires balancing drug access,quality, and cost to provide maximumvalue. Because pharmaceuticals havebeen a cost leader for health plans and self-insuredemployers, an increasing amount ofattention has been placed on managing adrug benefit that is comprehensive andaffordable. From the perspective of anemployer, healthcare costs represent a significantportion of total overhead. As costsincrease, this pressure may strain the financialviability of many employers. Figure 1illustrates the net impact of this trend basedon the earnings per share. Projections forhealthcare expenses for 2000 to 2005 are 7%to 20% per employee per year¹ for self-fundedprograms. Health plans are expected toincrease premiums at an even greater rateduring the same period. Yet, one surveyindicates, paradoxically, that health plansare slightly less concerned about managingdrug costs relative to employers placing agreater emphasis on quality of care (Figure2).²

Employers and health plans approachbenefit design from different perspectives.Figure 3 presents an employer decision treeto build the coverage to be offered toemployees. This focus includes a clinicalreview and an assessment of the profitabilityto the business. This process also examineshow the addition could impact the competitivestatus of the company.

The process for coverage decisions willvary by health plan (Figure 4). Primarily,the emphasis on clinical data and input fromthe provider network have the most significantimpact on the decision process. Theeconomic impact is focused solely on healthcare-related expenses versus the employerwith a broader evaluation on business profitability.

All stakeholders, including employers,managed care organizations (MCOs), andbenefit consultants, have the challenge ofoffering cost-effective healthcare. High-costtherapies require close scrutiny to assureunexpected costs do not arise.

Nationwide, healthcare plans have experienceda striking increase in the frequency ofrecombinant human growth hormone (hGH)requests for adult treatments in recent yearsand a corresponding elevation in plan costseven with utilization controls. If this trendcontinues, the cost of hGH to prescriptionplans would be unsustainable. hGH is only 1variable in the escalating drug cost process.Most patients receiving hGH therapy areadults; thus, employees and the number ofadults receiving this form of therapy continuesto grow. With a high average wholesalecost of hGH of $2760 per patient permonth,³ employers fear the impact of thissingle product will increase substantiallywith increased utilization.⁴ Additionally,hGH products are an approved treatment inmost formularies, or as part of the medicalbenefit plan, and no generic substitution isforeseen in the near future.

Even though these products require priorauthorization, payer costs remain substantial,whereas the member's cost remains relativelylow. For example, even a $250 permonth patient cost on a $1000 dose of hGHis only 25% of the total cost. The self-fundedemployer, therefore, is liable for 75% of thecost. Because of these cost drivers, themethods for managing injectables, such ashGH, have changed dramatically in the last3 or 4 years, and they continue to evolve.Some design considerations that are emerginginclude placing injectables like hGH inthe pharmacy benefits category. This representsa major shift in the management ofinjectable drugs and often a greater patientresponsibility for the cost of the product.Emerging prescription benefit trends forthese products include the implementationof a fourth (injectable) formulary tier toestablish separate copayments. Also, the useof specialty drug vendors provides an opportunityto decrease cost in the supply chain.

Member copayments are becoming amajor issue with hGH treatment. Plan membersare sharing more of the direct productcosts over time. For injectables, a 4-tiercopay system is emerging as an alternativefor injections. As an example of a fourth tierpharmacy benefit design, which includesvirtually all self-administered injectables,the members are responsible for a 30%copayment with a maximum out-of-pocketexpense of $250 per fill per month. Priorauthorization is required for many drugs inthis tier.

In a specialty drug benefit program, theprescription is processed through a specialtypharmacy that usually handles onlyinjectable medications. Orders areprocessed within 24 to 72 hours, drugs aredelivered directly to the provider or patient,and the health plan is billed directly. Thebenefits of this approach include reducedprovider inventory and cost, reducedprovider administrative costs, and reducedcosts to members and employers. Further,data can be collected on drug utilization andthe plan has more effective control of drugapprovals. More important, these programsalso offer a disease management programand, depending on the disease state, theprogram may integrate a case manager or ateam of clinicians into the program to optimallymanage the member's disease withthe prescribing physician. This program canalso include direct member phone contactsto encourage compliance. For growth hormone deficiency, some plans use a casemanagement approach that includes apatient education component and directmember delivery of the product. Thisapproach provides for inventory and billingfee reductions to reduce plan and membercosts. In the immediate future, providerincentives will likely spur an expansion ofthe specialty vendor concept and moreintensive case management.

Moving forward, a more flexible approachto drug benefit design may be based on value(Table). In this benefit model, the copaymenttiers are matched to the valuereceived. The benefit may be based on thetraditional formulary or drug use paradigmor can shift to health management or totalvalue. This design allows the employer orMCO to offer all 3 approaches based on theproduct or disease state.

Some drugs are best managed throughexisting systems. Others can be incorporatedinto a disease management program.The total value approach will require integrationof medical and pharmacy servicesand therefore may be limited to selecttherapies.

To manage the increasing cost of drugtherapy, innovative techniques must beemployed. Strategies to decrease costs andgain efficiencies in the system need to bedeveloped. Streamlining distribution cansignificantly reduce costs. Also, providingclarity on diagnostic criteria can reduce systemcosts for testing and physician visits.Placing greater costs on the patient throughcopay tiers will provide at least short-termbenefits. Overall access to distribution ofappropriate drugs needs to be proactivelymanaged to provide a cost-effective healthbenefit.

1. Mercer Human Resources Consulting. Today's EmployerPerspective, 2004. Atlanta, GA.

2. Mercer National Survey of Employer-sponsored HealthPlans, 2003. Atlanta, GA.

3. TrendCentral ESI, 2003 data. Express Scripts 2003 DrugTrend Report, Trend Central ESI, 2004.

4. Pharmacy Benefit Report, Facts & Figures, 2003 Edition.