Optimizing the Use of Cost-Sharing Strategies

March 13, 2009

Employers and their employees are facing tough times in today’s economy. To stay competitive, employers must scrutinize all areas of business for cost-cutting opportunities, including health care benefits. Consumers, too, face challenges. In October, a Kaiser Family Foundation poll reported that the percentage of consumers who skipped dosages or split pills in the past year to save on medication costs had increased to 22%, up from 19% in April. The percentage of consumers who reported not filling their prescriptions rose from 23% to 27% over the same 6-month period.1

Key words: Prescription drugs, Benefit design, Cost sharing

Employers and their employees are facing tough times in today’s economy. To stay competitive, employers must scrutinize all areas of business for cost-cutting opportunities, including health care benefits. Consumers, too, face challenges. In October, a Kaiser Family Foundation poll reported that the percentage of consumers who skipped dosages or split pills in the past year to save on medication costs had increased to 22%, up from 19% in April. The percentage of consumers who reported not filling their prescriptions rose from 23% to 27% over the same 6-month period.1

US spending on prescription drugs totaled $216.7 billion in 2006, more than 5 times the $40.3 billion spent in 1990.2 Unfortunately, this growth means that some employers and their employees struggle to cover the costs of medications. On the positive side, employers have a number of viable options to reduce their pharmacy benefit costs. These include cost shifting, cost sharing, use of value-based formularies, and working with local pharmacies.

Limitations of Cost Shifting
Cost shifting is a simple and increasingly popular tactic used by employers to cut costs but one that can be fraught with problems. Studies show that when plan members have higher copays or coinsurance amounts, their medication adherence rates decrease, contributing to increased medical costs and absenteeism.3 Overall, lost economic output from health-related problems among US workers totals about $260 billion annually.3

A survey of more than 150 employers by Buck Consultants revealed that 99% of the respondents offer a pharmacy benefit.4 Of those, 44% required employees to share 21% to 30% of the medication cost while another 45% required employees to share 11% to 20% of the cost. The remaining 11% required cost sharing greater than 30%.

A 3-tier cost-sharing structure is used by 72% of employers, according to the Buck survey, in which tier 1 includes the lowest-cost generic medications, tier 2 includes preferred brands, and tier 3 includes nonpreferred medications (usually newly introduced medications). Members are motivated to use medications in tier 1 because of higher out-of-pocket costs for medications in the other tiers.

There is the danger that shifting costs to employees, rather than seeking innovative ways to reduce drug spend and thereby share a lower overall cost, will result in employees forgoing needed health care services until their health reaches a crisis stage. When exploring cost-shifting strategies, employers must recognize the risk of lost productivity and increased direct health care costs, which could override any short-term savings.

Cost shifting can work, but to gain true value in better managing prescription drug costs, employers must align the appropriate incentives and give members access to information they need to make cost-conscious decisions. This can include education about using generic drugs, and tools that compare brand-name and generic drug costs as well as cost variations among pharmacies or pharmacy networks.

For example, employers can encourage members to switch to generics by offering a copay waiver for the generic drug for several months and then increasing the copay for the brand-name drug after that time. During this interval, employers can educate members about generics and encourage price shopping using paycheck stuffers, employee news-letters, and activities at benefits fairs.

Cost-Sharing Strategies
Constructive cost sharing can result in lower costs for both payers and members. It is important that employers ensure the strategies:
• Promote the appropriate use of medication therapy rather than create barriers to prescription drug use, especially for members with chronic illnesses.
• Help members feel that they are shouldering no more than their “fair share” of the cost.
• Provide positive reinforcement for both payers and members, illustrating cost savings over historical expenditures as a result of informed decision making.

Two cost-effective strategies to consider are value-based formularies and working cooperatively with local pharmacy networks.

Value-Based Formularies
The premise of a value-based formulary is to include drugs according to their evidence-based effectiveness. Several criteria are used to develop such a formulary, including:
• Evidence-based criteria (outcomes data, not just surrogate markers [eg, morbidity and mortality data rather than measurements of blood pressure or lipid levels]).
• Convenience of dosage to maximize adherence.
• Population demographics, such as ethnicity, age, and geographical region.
• Appropriate dosing to avoid adverse drug reactions and contraindications.
• Potential for drug interactions.
• Need for additional monitoring.
• Cost-per-therapy day.
• Medication-related physician office visits, emergency department visits, and hospitalizations.
• Total health care costs.

When drugs are evaluated on the basis of these criteria, a formulary can be designed that aligns effectiveness and cost and provides members access to the right drugs, in the right dosage, at the right price. For example, an employer might set up a program with a formulary limited to the most common drugs used by its members, plus a limited pharmacy network. Members who fill prescriptions for drugs on the formulary and through a network pharmacy are charged a copay of $10 for a generic or $20 for a brand-name drug. If members go off formulary or out of network, they can augment the benefit with a discount prescription card to help offset costs. This ensures that members have access to all medications while keeping costs down for the employer.

Leverage the Local Pharmacy
It is essential when designing the pharmacy benefit that the PBM work collaboratively with the employer to assess the needs of the member population to be served. They can tailor plans to the regional market by providing deeper discounts for prescriptions filled at local pharmacies, thereby better serving employees while optimizing the health care budget.

In addition to the convenience and cost savings provided, giving employees and their families a strong local pharmacy network provides opportunities for community pharmacists to be a resource for member education about drug choices. This can be especially valuable in helping members make more cost-conscious decisions. While studies show that physicians remain the primary source of information about drugs, pharmacists are a close second and can be very supportive in helping members understand how they can affect costs, such as by recommending lower-cost generic alternatives.5

Conclusion
To achieve the most cost-effective outcomes, employers need to strive for a balance that shares costs while also providing appropriate incentives for employees to maintain therapeutic adherence. This can be done through education, a value-based formulary, and a pharmacy network designed for the employee population. The challenge is to determine what blend of strategies works best for a specific employee population.

References:

References
1. Kaiser Health Tracking Poll: Election 2008. The Henry J. Kaiser Family Foundation. Issue 11, October 2008. http://www.kff.org/kaiserpolls/ upload/7832.pdf. Accessed February 6, 2009.
2. Prescription Drug Trends. Kaiser Family Foundation. September 2008.
http://www.kff. org/rxdrugs/upload/3057_07.pdf. Accessed February 6, 2009.
3. Davis K, Collins SR, Doty MM, et al. Issue Brief: Health and Productivity Among US Workers. The Commonwealth Fund. August 2005. http://www.commonwealthfund.org/usr_doc/856_Davis_hlt_productivity_USworkers.pdf?section=4039. Accessed February 6, 2009.
4. Understanding Your Strategies for Coping With the Changing Pharmacy Benefit Landscape. Buck Consultants, LLC. June 2008. https://www.bucksurveys.com/buckp/!stmenu_template.main?complex_id_in=1051099.1051531.1068009.3871011.page. Accessed February 6, 2009.
5. The Public on Prescription Drugs and Pharmaceutical Companies. USA Today/Kaiser Family Foundation/Harvard School of Public Health. March 2008. http://www.kff.org/kaiserpolls/ upload/7748.pdf. Accessed February 6, 2009.