In our 2017 National Survey of Employer-Sponsored Health Plans, we asked employers to rate the importance of strategies they will be using over the next five years to advance the triple aim of lower cost, higher quality, and a better member experience. This post on drug rebates and formulary management is part of a series that looks at these six key strategies.
You may have seen some articles lately about two big insurers—UnitedHealthcare and Aetna—announcing they will pass on prescription drug-maker rebates to members in fully insured plans in 2019. UnitedHealthcare and Aetna can take this action on behalf of consumers under fully insured plans because they are the ERISA fiduciary. However, only the plan sponsor can authorize rebate sharing for consumers under self-insured programs.
A few items to note:
- Subsequent to the initial announcement, both insurers indicated they were only passing through part of the rebate.
- They also said they would be increasing premiums as a result—so while a few will benefit, all plan participants will pay more.
So, if you’re a self-insured plan sponsor, should you follow UnitedHealthcare and Aetna’s lead? The post-announcement clarifications illustrate some of the give and take with this decision. Rebates are paid on many brand name drugs. Recently, specialty drugs, which treat complex chronic diseases, have seen a large increase in rebates. These rebates are paid to the plan sponsor, which typically uses them to lower overall plan costs.
Many reports have pointed out that patients in high-deductible plans that require coinsurance are paying a very high gross cost out of pocket instead of a lower net cost (post rebate). However, if rebates are shared partially or entirely with members, then gross plan costs go up and many— if not most—employers will increase contributions to members.
While sharing rebates seems to help those on high-cost drugs, it can also affect all covered members’ costs. Also, note that Pharmacy Benefit Manager (PBM) functionality to administer rebates at the point of service varies. For instance, Express Scripts can share rebates on a pro rata basis with some percentage designated by the employer going to the member. However, at this point CVS can only share the entire rebate with the member—not a portion.
So, plan sponsors should talk with their pharmacy administrator not only about financial impact, but also about their ability to administer point of sale rebates.
Formulary and Cost
PBMs indicate that formularies—a preferred drug list designed to steer members to certain drugs to increase leverage and lower costs—provide a strong benefit to employers and their members. But if that’s the case, why are various formularies so different?
One answer is that each PBM/carrier develops their formulary differently. While all providers want to assure they have medically appropriate drugs to address member needs, some may emphasize generics and/or older brands that pay a lower rebate, while other providers may emphasize a newer brand with a higher cost, but also a higher rebate. Which one generates the lowest cost? There’s really no way to know without doing an analysis of how your utilization tracks versus the current or other formularies.
Some providers add “rebate chasing” drugs to their formularies in the hope of making themselves more attractive through high rebate payouts. But some observers feel they are actually increasing cost because those drugs may be more costly than other older brand or generic options with no or low rebates.
Plan sponsors should talk to their PBMs to determine whether some of these “rebate chasing” drugs are on their formulary. In many cases, the PBM offers options that eliminate certain drugs or emphasize generics to generate lower net cost.
More posts on Key Strategies:
- The Surprisingly Strong Connection Between Well-being and Turnover
- High Cost Claims By the Numbers
- High-Cost Claims: You Ain’t Seen Nothin’ Yet
- Why Consider Point Solutions? (And What are They, Anyhow?)
- Three Tips to Help Employees Choose a Health Plan
- Three Steps to Building a Better Health Plan Network
- Where's the Real ACO?
- Disruption is Not a Four-Letter Word