Top Strategies For Driving Down Prescription Drug Spending

October 09, 2020 - High prescription drug spending has racked the American healthcare system’s cost trends for decades.

Prescription drug spending will be one of the major factors influencing the 2020 medical trend, PricewaterhouseCoopers (PwC) predicted back in 2019.

The PwC report noted that benefit cost growth has surged based on two factors: medical service prices and prescription drug prices. The researchers anticipated that retail drug spending growth would continue to rise starting in 2020, rising by 3.2 percent in 2020 and hitting a high of 5.8 percent growth in 2023.

Policymakers fail to agree on the best way forward. Debating over Medicare drug pricing, recommendations have included setting out-of-pocket prescription drug spending limits, tying drug prices to inflation rates, and adjusting the cost based on international drug pricing.

Amidst this turmoil, payers, employers, and consumers still face massive—and growing—prescription drug costs each year. Employer-sponsored health plans were responsible for covering 42 percent of prescription drug spending in 2017.

READ MORE: Managed Care Organizations Lead to 27% Lower Prescription Costs

What can payers and employers do to bring prescription drug spending under control?

Implement drug price transparency tools

By employing greater drug price transparency, payers can bring down prescription drug spending for members.

“The primary aim of drug transparency laws is to empower consumers, state health agencies, and health insurance providers with better information on drug prices,” explained a 2018 brief from America’s Health Insurance Plans (AHIP).

“Extensive literature in the field of economics demonstrates that providing buyers with better information regarding product quality and cost enables them to seek out and negotiate better prices.”

These benefits are not confined to the policymaking realm, however. Payers can arm stakeholders with better drug pricing data in a variety of ways in order to help them select more cost-effective options.

READ MORE: Zero-Dollar Drug Copays Lowered Total Chronic Disease Spending

For example, Blue Shield California (BSC) implemented a drug price transparency strategy that gave providers more insight into potential out-of-pocket healthcare costs for members when prescribing medications.

BSC’s drug price transparency tool features member prescription history, current drug spend, and health plan details. Using that data, the tool estimates what amount of out-of-pocket healthcare spending the member may face if prescribed the medication under consideration. The tool also recommends lower-cost alternatives.

Thus, instead of the member finding out her bill at the pharmacist’s counter, the provider can share that information with the member while she is still in the office or simply select the lowest cost option upfront. By being able to make an informed decision about which drug is a lower price, members can decrease their overall prescription drug spending.

This is not necessarily a novel capability, as many providers have access to resources on prescription drug pricing, such as formulary tools. However, it is unique in that it saves the provider time searching for that information by integrating the data into the provider’s workflow.

Humana has also pursued this form of drug price transparency by partnering with Epic Systems to insert Humana’s IntelligentRx price transparency tool into Epic’s EHR systems.

READ MORE: Payers Recommend Actions To Promote Biosimilars, Drug Competition

“When prescribers use IntelligentRx and they are presented with alternatives, we find that they select the more cost effective treatment nearly 40 percent of the time,” Scott Greenwell, president of Humana Pharmacy Solutions, said at the time.

Reform formularies

Payers have the ability to forge formularies that incentivize lower drug spending.

Drug formularies are lists of prescriptions that a health plan or prescription drug plan covers. Often, these lists are broken into tiers based on cost, availability, effectiveness, and other factors. The bottom tiers—which are lower numerically—require lower cost-sharing. For example, Tier 1 drugs are often generics.

Payers can leverage formularies to direct patients towards lower-cost, effective drug alternatives.

For example, Oscar Health has reinvented its formulary to create the $3 Drug List. This list contains 100 drugs that serve patients with common chronic diseases and conditions. The drugs are “maintenance medications,” meaning patients will likely have to consume them on a daily basis and alongside other prescriptions.

Oscar can offer the drugs at these prices because it identified older classes of drugs that were lower cost but still safe and effective.

“We believe that there is a set of cost-effective, affordable medications that everyone should have access to,” Vinod Mitta, MD, vice president of pharmaceuticals at Oscar Health, told HealthPayerIntelligence. “By standardizing it, not just for certain plan types, but all plan types within a given geography, we also simplify the lives of our members, our brokers, our prescribers.”

By adhering to the $3 Drug List, Oscar estimated that members could save thousands of dollars per prescription. For example, patients with diabetes could potentially save over $4,000 per year by switching to Novolin N.

Biosimilars and first generics can also be lower cost. Giving seniors more access to first generics could save them over $4 billion per year, according to some studies. However, in the first year on the market, only 10 to 25 percent of first generics are covered under a formulary, making them difficult to access for most patients.

By steering members towards these options through low cost-sharing and formulary structure, payers can help prevent unnecessary spending on drugs with a higher price tag.

Emphasize preventive care, chronic disease management

Naturally, those who have complex conditions and chronic diseases will require higher healthcare spending.

Specialty drugs are used by only two percent of US population. But these drugs accounted for 47.7 percent of total drug spend in 2019, according to a study by Express Scripts. The study found that inflammatory conditions, diabetes, oncology, HIV, and multiple sclerosis would be some of the primary drivers of prescription drug spending, among other conditions.

In general, an emphasis on preventive care and a strong approach to chronic disease management can go a long way in healthcare spending, including prescription drug spending.

Early detection is a major cost-saver in chronic disease treatment and can be implemented in a number of ways. For cancer alone, studies have indicated that early detection could lead to $26 billion in savings. Two effective methods are care coordination and precision medicine.

Humana has employed care coordination around members at risk of chronic kidney disease in order to ensure early detection and lower treatment costs.

Those who may develop chronic kidney disease and end-stage renal disease will receive a diverse team that is prepared to identify the disease early. The team collaborates with the member’s primary care provider to form a strong preventive care approach.

CVS Health, on the other hand, used precision medicine to detect cancer earlier and prevent higher spending.

The program leverages patient data to identify individuals who may be at risk for cancer. Once at-risk members have been identified, they may receive a broad-panel gene sequencing test that will determine the best approach to treatment for the patient’s body.

“Timing in cancer care is everything and when a patient does not get started on the right treatment it can result in progression and higher costs,” said Alan Lotvin, MD, executive vice president and chief transformation officer at CVS Health.

“We are the first company working to make the latest in precision medicine accessible to more patients and further empower informed treatment decision-making based on a patient's genetic profile to give them the best chance for successful treatment and improved quality-of-life.”

Importantly, preventive care is not only for those who are at-risk but otherwise healthy. Even for members who already have a chronic disease requiring prescriptions, preventive care can reduce the number of comorbidities that lead to even higher spending.

What about pharmacy benefits managers?

Pharmacy benefits managers (PBMs) are at the heart of the contention in the healthcare industry regarding prescription drug spending.

PBMs are the middlemen that are supposed to help drive negotiations between payers and pharmaceutical manufacturers.

Some argue that PBMs can help cut costs. Those who support PBMs say that these organizations are able to negotiate greater price discounts from retail pharmacies.

In support of this perspective, a 2019 GAO report found that PBMs pass on 99 percent of the rebates that they acquire from pharmaceutical manufacturers to consumers.

However, many in the payer industry disagree with this viewpoint.

Payers argue that PBMs demand costs from payers that are above the price that they negotiated with drug manufacturers and keep a portion as revenue—a practice called spread pricing. Payers also criticize PBMs, saying that they take rebates from drug manufacturers and retain them as revenue instead of passing those savings on to the consumer.

Those who hold this perspective may prefer to eliminate the pharmacy benefits manager role altogether in their negotiations in order to cut drug spending costs.

For example, the state of Michigan decided to back away from PBMs in order to cut costs.

A report by the Michigan Pharmacists Association around the time of this decision noted that the state had overpaid for prescription drugs by $64 million. To control these unnecessary costs, the state determined to partner with one PBM instead of multiple.

Payers in Michigan were not receptive to the idea because it eliminated a revenue stream—outpatient prescription drug coverage, which would no longer fall under Medicaid health plans’ jurisdiction.

Nevertheless, this is just one example of states who have elected to drastically diminish or eliminate altogether the role of PBMs as a method of decreasing prescription drug-related spending.

These are merely three strategies that payers can implement to bring prescription drug spending under control. Alternative payment models are another key tool in reducing costs as well as health plan-PBM vertical integration, though some are doubtful that this will lead to lower costs.