February 03, 2020
As employers enter a new year, addressing pharmacy trend remains a priority health care strategy. Pharmaceutical innovation continues to evolve and bring promise to patients, while the payer community continues to navigate unprecedented price tags and cost volatility. This sobering reality has led to increased activity on both medical and pharmacy benefit manager (PBM) fronts, with employers rolling out various initiatives to address the rising costs while maintaining the value of their benefit offering. With so much clinical innovation going on in this space, many employers are also taking advantage of every opportunity to explore, educate themselves and strategize with their vendor partners to optimize cost-savings potential and remove any hurdles to appropriate patient access.
Here are five trends that were top of mind for employers as the curtain closed on 2019 and that will remain in the spotlight throughout 2020.
Formulary may be a powerful cost control lever
Alarming Rx price tags and hyperinflation trends have employers tightening their grip on formulary. In the first half of 2019 alone, more than 3,400 drugs listed for new, often significantly higher, prices. This number is up by 17% when compared to the same time period in 2018, and the average price increase is 10.5% -- 5X the rate of general inflation.1,2 Some employers are proactively exploring customization options, including a six-month coverage denial period for certain or all new-to-market products. Others are relying heavily on their PBM partners to maintain a cost-effective formulary through the continuous monitoring and strategic removal of low-value drugs. Formulary is an especially powerful lever for ensuring the uptake of biosimilars in the marketplace (more on biosimilars below).
Assume and maintain a proactive stance when it comes to ensuring that your PBM is staying on top of hyperinflationary products. Confirm that mid-contract year formulary changes are allowed per your PBM agreement and can be done with necessary frequency in response to market changes.
Cracking open the ‘black box’: Cost control under the medical benefit
Employers are acutely focused on medications administered and paid for under the medical benefit – the “black box” infamous for its lack of transparency, reliable reporting and predictability. Given that many high-priced drugs, including specialty and advanced therapies such as gene and cellular therapy, are adjudicated through the medical benefit, employers have been forced to assert more control in this space. Many are carving out certain drugs and bringing them over to their PBM, including IVIG and TNF blockers (e.g., Remicade). In addition, opportunities now exist for employers to review oral oncology drugs to see if they might be better managed on the PBM side. According to Business Group data, the number of employers instituting a prior authorization for these drugs is projected to jump 23 percentage points between 2019 to 2020. Site-of-care management is also on the rise, with more and more employers looking into this cost-control strategy in the new year. The cost savings potential of moving an infusion treatment from the medical setting to an alternative or home site is enormous, with savings between $1,928 and $2,974 per treatment course.3
Increase your understanding of physician reimbursement models. Talk to your health plan/Center of Excellence (COE) partner about the potential for decoupling oncology specialty drug payments from physician compensation (i.e., shaking up the traditional ASP+6% buy-and-bill model) and instituting a flat reimbursement.
Biosimilars: Employers are not giving up on them
Since the release of the first biosimilar in 2015 in the U.S., these drugs have struggled to gain traction in our market. Only 7 are currently being promoted to physicians and patients (with little success), despite the fact that 26 have received a stamp of approval from the Food and Drug Administration (FDA).4 Two years ago, the European Union (EU) began to see savings averaging around 30% due to far greater biosimilar market access within the EU.5 The current contracting system is partially to blame for this abysmal uptake in the U.S., with heavy rebating practices often precluding biosimilars from being the lowest net cost option, even when they come to market at a lower list price than the reference product. In such cases, when the reference product can offer the lower net price for the plan, the biosimilar may effectively be blocked from making it on formulary. Nevertheless, some smaller PBMs, are beginning to push biosimilars as preferred medications. Where this has happened, employers have heard little noise from employees – likely due to efforts that have included preemptive communication with providers. Some employers have even embarked on biosimilar education campaigns to dispel any myths and misconceptions about these products. In general, employers can play a significant role in shaping competition among products and contributing to either the success or failure of biosimilars in the marketplace.
Explore your specialty pharmacy vendor’s strategy for ensuring the long-term viability of biosimilars. Ask whether in certain instances greater discounts or rebates might encourage preferential treatment for the reference product over the biosimilar. Some plans argue that preferring a biosimilar will increase costs, since the rebate game will allow reference products to offer lowest net costs. However, in today’s anti-competitive market, employers may want to consider making short-term investments by preferring biosimilars in order to reap the benefit of long-term savings.
Advancement in genomic science demands a new approach to benefits
The rate at which new pharmacogenomic tests and gene therapies are entering the market is astounding. The pharmacogenomics market alone is expected to grow by 10.5% over a forecast period of 2018-2023.6 Additionally, the FDA commissioner anticipates that by 2025, we’ll see between 10 and 20 new cell and gene therapies being approved each year, with likely six new gene therapy filings from manufacturers in 2020 alone.7 While rapid progress in the space has certainly brought new promise to patients, it has introduced a host of new challenges and considerations for the payer community. In particular, the extraordinarily high costs associated with the gene therapy pipeline has placed unprecedented pressure on the system. For employers, balancing these costs with coverage decisions promises to be challenging – physicians and health plans can barely keep up with the pace of innovation. Employers must also navigate new vendor partnerships (e.g., lab benefit managers, genetic testing counselors) and consumer market solutions that this growing field has introduced and now requires. With the new year comes a tremendous need for further knowledge in this space. One thing is clear – employers cannot go it alone. They will rely heavily on their partners, old and new, to help them cautiously sort through the clutter and keep costs down while staying agile enough to ride this transformational precision medicine wave.
Explore this new landscape and cultivate a working knowledge of what’s in the pipeline. Talk to your health plan or third-party administrator (TPA) about how they are adjudicating these new tests and therapies and review your claims data frequently. Check in with your finance and risk management teams and make them aware of the potential for higher-cost individual claimants.
More transparency: A new year’s resolution for the PBM industry
A new, far more transparent, PBM revenue model is gaining momentum in the marketplace. Representing a shift from the traditional model that relies on rebates and spread pricing, this newer, transparent model relies on administrative fees and promises 100% pass-through of all pharma-generated revenue to the client. Employers are granted access to 100% of their data and information on sources of rebates, allowing for better tracking and monitoring. Additionally, there is an increased focus on shared savings models that are rooted in total cost of care outcomes. PBMs are also expanding the number of value-based agreements they have in place with manufacturers, agreeing to pay only when their pharmaceutical product demonstrates efficacy. Ultimately, while the system as a whole is not willing to kick rebates to the curb entirely, there’s been a noticeable effort to develop alternative payment models, and employers are all ears.
Consider that the rebate/discount approach is no longer the only way of conducting business. Talk to your PBM partner about how they plan to approach transparency in the new year and ask what alternative payment models they may be exploring. Given this new trend and other emerging stakeholders in the market, consider whether expanding the scope of your RFP would be an appropriate strategic step for your organization.
- PICCHI A. Drug prices in 2019 are surging, with hikes at 5 times inflation. CBS News. 2019. https://www.cbsnews.com/news/drug-prices-in-2019-are-surging-with-hikes-at-5-times-inflation/. Accessed October 25, 2019.
- CVS Caremark. Blunting the impact of hyperinflated drugs: Strategic formulary removals help contain costs. Insights Briefing. August 28, 2019. https://payorsolutions.cvshealth.com/sites/default/files/cvs-health-payor-solutions-blunting-the-impact-of-hyperinflated-drugs-briefing-august-2019.pdf. Accessed January 10, 2020.
- Polinski JM, et al. Home infusion: Safe, clinically effective, patient-preferred and cost-saving. Healthcare. 2016. https://www.healthnewsreview.org/wp-content/uploads/2016/05/Home-infusion-CVS.pdf. Accessed December 9, 2019.
- Zhai MZ, Sarpatwari JD, PhD, and Kesselheim AS. Why are biosimilars not living up to their promise in the US? AMA Journal of Ethics. 2019;21(8): E668-678.https://journalofethics.ama-assn.org/article/why-are-biosimilars-not-living-their-promise-us/2019-08. Accessed December 10, 2019.
- Serebrov M. Biosimilars: Opportunities and challenges in the US and EU. Drug, Chemical and Associated Technologies Association. 2019. https://dcatvci.org/5058-biosimilars-opportunities-and-challenges-in-the-us-and-eu. Accessed December 10, 2019.
- Market Watch. Pharmacogenomics market size, share 2019 industry development analysis, global trends, growth factors, CAGR status, industry insights by top key players and, forecast to 2024. Market Watch. 2019. https://www.marketwatch.com/press-release/pharmacogenomics-market-size-share-2019-industry-development-analysis-global-trends-growth-factors-cagr-status-industry-insights-by-top-key-players-and-forecast-to-2024-2019-06-04. Accessed December 10, 2019.
- Stanton D. In the pipeline: Surge of cell and gene therapies likely in 2020. BioProcess International. 2019. https://bioprocessintl.com/bioprocess-insider/therapeutic-class/in-the-pipeline-surge-of-cell-and-gene-therapies-likely-in-2020/. Accessed December 10, 2019.