Tuesday, April 3, 2007

Lowering Rx Co-pays Produces Big Savings

If your company has been increasing co-pays on prescription drugs in order to offset steadily rising pharmacy costs you may wish to consider how Blockbuster was successful in reducing pharmacy costs by over 33.5% by lowering co-pays and adopting a 4 tiered approach as noted here.

Lowering or eliminating co-pays for low cost or OTC generics while raising brand co-pays can produce dramatic results by raising your overall generic utilization rate while at the same time lowering your pharmacy trend to a negative number.

But do not allow your pharmacy claim data to languish on some PBM rep or pharmacy consultants hard drive. There is meaningful and compelling data there which can be mined to provide a prospective picture of your "at risk population to become a chronic "whose behavior needs further modification beyond just the pharmacy co-pay if your strategic objectives of controling benefit costs are to be achieved. You need analysis from someone with an understanding of your overall objectives in benefits as well as deep practical experience in arriving at proper plan design recommendations in your other benefit offerings--Medical, Dental, STD, LTD, Behavioral & EAP to allow the data from your pharmacy claims to impact all of your benefit offerings. You need an integrated view.

One of the observations on the health care space in the last 3-5 years I would make is that employers who have adopted consumer driven long term strategies have a much greater appreciation of the interdependence of their benefit offerings than many of the intermediaries who serve them. You see many intermediaries are transaction oriented, they are historically project or account acquisition driven. Essentially, at many consulting firms you have a partially extroverted actuary functioning as a relationship manager who trots out subject matter experts for absence management, disease management, disability management, behavioral & EAP and Pharmacy. The problem with such a business model is it does not lend itself to integrating thought leadership very well across product lines. No offense to actuaries but communication has never been what one could refer to as a group strength. If you take offense at that statement perhaps you should scan this proof statement (Its a letter from The American Academy of Actuaries on the lessons learned from the 1st year under Medicare Part D) and comment below on the salient points below. Do tell. There will be a prize for the best comment or barring that anyone who can finish and still talk.

The point is mining data will provide useful data. Putting that data together to arrive at appropriate plan design changes across multiple products requires the application of both plan design and cross- product expertise. Since most actuaries are so specialized-health, life, disability, pensions, good luck with that as the person with that skill set in America works for themself, especially if they are an actuary, because they can.


cbcactuary said...

Very informative blog, in spite of your jabs at us nerdy actuaries. Pharmacy benefits is one of my favorite subjects--it appears yours as well. It seems as the "PBM's are evil" line is prevalent in your blog.
Common advice in today's consulting world. Not sure if it gets at the real problems in health care.

Dan Buckle said...


Thanks for the comments.
Actually I have no issues with pbms per se but I do have a major issue with PBMS which behave in a manner that is contrary to their marketing by marking up generics 1500% while purporting to manage the drug spend for the employer paying their bill.

I actually have a number of friends who are actuaries so my jabs are all in fun.

What fascinates me about todays consulting world in the healthcare and pbm space is how so many pbms were able to expand their margin at a phenomenal clip over the past 10 years while consulting firms were supposedly squeezing out all the fat via an RFP every 3 years.

cbcactuary said...

I agree, it seems some of the old consulting solutions have not put a dent in the huge profits many are making at the expense of our clients. As background, I'm just starting a small consulting shop, due largely to my belief that I can better offer fresh ideas on my own.

I'm particularly interested in your note on data mining. I've not read any more on your blog regarding the specifics. If you have any, love to hear more, as this is an area I hope to specialize in, particularly in the prescription drug space. From my experience, there are many dollars to be saved with a little poking around into data. You seem to agree.

Dan Buckle said...


Just drop me an email and we can connect live. Next weeks bad for me til late week