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How Pharmacy Benefit Managers Could Reduce Drug Cost Growth

Pharmacy benefit managers are currently working to negotiate drug costs and create more competition between different products.

By Vera Gruessner

From a health insurance perspective, more analysis needs to be taken into account when attempting to reduce healthcare spending. For instance, health payers may be interested in learning that pharmacy benefit managers (PBM) actually play a role in decreasing drug cost trends, according to a PwC Health Research Institute (HRI) report called Medical Cost Trend: Behind the Numbers 2017.

Drug Cost Trends

The Pharmaceutical Care Management Association released a press release that outlines how pharmacy benefit managers are currently working to negotiate drug costs and create more competition between different products since more employers today are looking to narrow their drug formularies. Employers looking to lower their spending related to healthcare coverage could consider re-evaluating their arrangements with pharmacy benefit managers.

This is playing a role in reducing healthcare spending as a whole, the release states. Pharmacy benefit managers and their potential to negotiate pricing could play an important role in the future of moving away from fee-for-service payment strategies toward one that is based on value and results.

“This report underscores how PBMs are driving competition and in turn reducing costs for consumers, employers, government programs, and unions. Policymakers should embrace greater use of proven PBM tools and reject drugmaker and drugstore lobby mandates that would increase prescription drug costs,” Pharmaceutical Care Management Association (PCMA) President and CEO Mark Merritt said in a public statement.

The report from the PwC Health Research Institute underlines the important financial savings that pharmacy benefit managers could garner, which is estimated at $654 billion or up to 30 percent. This would be in the form of drug benefit costs and would be a large advantage for both consumers and employers.

The PwC report also discussed how there has been a downward trend of healthcare cost growth. While in 2007, medical cost growth was rising at 11.9 percent, the current rate is remaining firm at 6.5 percent in both 2016 and the 2017 projection. However, since this rate hasn’t dropped any further and still outpaces the inflation rate, it may be time for health payers and providers to begin transitioning to more risk-based contracts and new value-based payment strategies.

The report also outlines that healthcare organizations will need to “increase access to consumer friendly services while decreasing unit cost.” In addition, the results show that an increase in prices - not higher utilization - is driving the cost growth in healthcare spending.

About 50 percent of employer health costs are coming from inpatient and outpatient medical care, the report shows, while pharmacy services are also growing. Nonetheless, drug spending only hits about 17 percent of overall healthcare spending.

The report also found that an increase in spending could be due to the proliferation of urgent care centers and retail clinics due to greater utilization of medical care through these means. In fact, 80 percent of polled consumers stated that they are more likely to get treatment at retail clinics, according to a press release from PwC Health Research Institute.

However, greater utilization of healthcare services today could potentially bring reduced spending due to improved health and wellness in the future. The results also show that more employees now have increased access to mental healthcare with employer spending related to mental health rising from 5.2 percent to 6.2 percent between 2005 and 2013.

Once again, over the long-term, greater access to behavioral health could bring a downward pressure to healthcare cost growth since mental health problems are often linked to physical ailments.

In the current health insurance landscape, employers are seeking high performance networks, the report found. As many as 43 percent of polled employers stated looking to implement high performance networks in 2016. This entails more limited provider options with a focus on value-based care reimbursement.

“Forces that typically drive healthcare costs higher are being tempered by demand for value in the New Health Economy,” Kelly Barnes, US Health Industries and Global Health Industries Consulting Leader, PwC, said in the release. “Consumers are pushing back against high cost sharing, forcing employers to look for new and creative ways to control spend.”

The bottom line is that healthcare cost growth may have stabilized in recent years but further work needs to be done to ensure this growth rate does not rise faster than inflation. As such, employers and payers should bring greater attention to pharmacy benefit managers who could decrease the cost of prescription drugs.

 

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