If you’re even vaguely familiar with employee benefits, you probably know that prescription drug costs usually account for a significant portion of total employee benefit costs. Prescription drug costs usually account for between 20% and 25% of total benefit costs (on average). These costs keep rising, but there’s good news: there are actually steps you can take to decrease your prescription drug costs, and still support your employers with excellent prescription drug coverage.
Prescription drug statistics to know
Approximately on a quarter of spending on maintenance medications is a waste. It’s wasted because drugs are being purchased from pharmacies with excessive markups and higher-than-reasonable fees. It’s also being wasted because these dollars are being spent on higher-cost prescription drugs, when there are equally effective, lower-cost alternatives.
As well, high-cost specialty drugs are being used more often, accounting for just 3% of prescription drug claims, but over 30% of the total spend on prescription medications. There are alternatives to these drugs that are not being explored, or used, as much as they should be.
Prescription drug purchasing: a dysfunctional process
Most people give little thought to the process that occurs during a prescription drug purchase. You visit the doctor, you get a prescription, you fill it at the pharmacy you choose, and you’re all set. The problem is that there is a lot happening behind the scenes that has a real impact on the cost of the prescription drugs you’re purchasing. These “hidden” inefficiencies have a real impact on the cost to your benefit plan.
What’s really happening when you visit the doctor can be more complicated. General practitioners and specialists are bombarded with information and visitations from brand name pharmaceutical companies. These companies have invested millions in the drugs they’re promoting, and their goal is to get as many doctors as possible to prescribe these drugs. The generic manufacturers have a much smaller budget, and they don’t make the rounds as often. As a result, the brand name drugs may be more familiar to the doctor, so that’s often what they prescribe. And generally, brand name drugs are more expensive than generics.
Next, where you choose to have the prescription filled is also part of the dysfunctional process. Pharmacies have a lot of discretion around the markup they charge on the drugs, as well as the dispensing fees. So if you haven’t done your homework, the pharmacy you choose could be charging you a much higher fee than if you went somewhere else.
Making a change: some things to aim for
The first step to decreasing prescription drug costs is to make a change: break the dysfunctional drug purchasing process and add financial stability to your drug plan. You can do this while still supporting your employees with these important benefits.
When you’re ready to make a change, here are some things to aim for:
- Challenge traditional thinking and introduce alternatives to the current “passive” drug purchasing process
- Decrease your plan’s exposure to high pharmacy fees (markups, multiple dispensing fees and high-cost drugs)
- Make all of it convenient for plan members
Target the drugs themselves
There are several different types of prescription drugs, and the cost of those types can vary greatly. Brand name prescriptions drugs are initially under patent. While under patent, the drug manufacturer has a monopoly. During this period they usually charge a high price as they try to recoup research and development costs (which are typically very high).
Once the patent expires, other manufacturers can “copy” the drug and produce generic equivalents of the brand name drug. Strict government regulations require that generic drugs be “bio-equivalent” to their brand name counterparts. This means the active ingredients must be identical to the brand name drugs; only non-medical fillers and colours can vary. Generic manufacturers do not have to try to recoup research and development costs (because they’ve copied the brand name drug), so they sell their product at a much lower price.
Providing incentives to employees to request generic drugs (instead of brand name drugs) can provide considerable savings for the employee benefit plan. According to a 2016 report, a 1% increase in generic fill rate translates into a 1% savings in drug spend.
Some drugs do not have generic equivalents, but they may have therapeutic alternatives that cost less. Often a disease or illness can be treated in several different ways, with several different drugs. Treating with a therapeutic alternative would mean using a different drug to treat the same illness. Often it would be the generic equivalent of a different drug. In doing so, the employee benefits plan can save money.
Manage where drugs are purchased
Much like different grocery stores charge different prices for the same goods, pharmacies charge different prices for the same drugs. Each pharmacy can choose how much to charge for ingredient costs, markups and dispensing fees. These fees can vary greatly, and if an employee is not being a “smart shopper” by choosing lower-cost pharmacies, the employee benefit plan shoulders the extra costs.
By managing where employees purchase their prescription drugs, the employee benefits plan can decrease prescription drug costs. Dispensing fee caps are one way. Partnering with a pharmacy (a “central dispensing pharmacy” for example) can be much more effective, and more convenient for employees. Having agreements in place regarding ingredient costs, maximum markups and dispensing fees can make a world of difference in prescription drug costs for your employee benefits plan.
Smart Rx Solutions
GroupHEALTH’s exclusive Smart Rx Solutions specifically target prescription drug costs. These products work at controlling prescription drug costs by affecting which drugs are purchased and well as where the drugs are being purchased from.
- Managed Rx – Managed Rx is a comprehensive approach to cost control because it targets both the drugs covered, and where drugs are purchased. Employees still have a choice as to which drugs they purchase and where they purchase them from, but they receive more coverage if the drugs are lower cost and if they’re purchased from a central dispensing pharmacy.
- Maintain Rx & Postscripts Rx – These products target where “maintenance” prescription drugs (drugs that are used on an ongoing basis) are purchased from. In order to receive coverage, employees MUST purchase from the central dispensing pharmacy. These are then delivered directly to the employee at whichever address they choose.
- FormuCare – FormuCare targets high-cost specialty drugs: employees who have prescribed a high-cost specialty drug (estimated to cost more than $10,000 per year) will not receive coverage for the drug through the drug plan at all, but will instead be referred to “coverage navigation” experts who work with governments, manufacturers and other plans to help the employee alternative sources of coverage. This can be a very effective way to contain costs, and coverage navigation experts are skilled at reducing the financial burden to employees.
One of the most important factors in decreasing prescription drug costs for your employee benefits plan is to educate employees by teaching them to be knowledgeable drug consumers. They can learn how to recognize how different drugs and different pharmacies can affect the cost of the benefit plan.
Explaining the need to control costs to ensure the long-term sustainability of the plan is a great approach. Asking each employee to take on a new role as a “smart shopper” can break the dysfunctional prescription drug purchasing process, and keep your benefit plan costs low.
Good Advice is Key
Are you looking to decrease prescription drug costs? Are you wondering which product or approach is right for your business? Review your options with one of our licensed advisors on the phone or contact us for a comparison quote.
Whether you’re looking for extended health and dental coverage, disability coverage, or life and critical illness coverage, GroupHEALTH has affordable benefits packages that work as hard as you do.