Pharmacy Costs 101: Understanding the basics
Keeping healthcare affordable for our members is a central part of our mission at Tufts Health Plan. One of the most important ways we do this is by taking steps to help our plan sponsors and members manage the high cost of prescription drugs.
The U.S. spends nearly $334 billion a year on prescription drugs with the average American spending $1,200 per year on prescription drug co-pays alone. For employers, it’s a constant challenge to try to navigate rising drug costs while still ensuring employees have access to the prescriptions they need, whether it’s the medications they take on a daily basis or the ones administered at clinic or hospital visits.
If you’ve ever used a prescription drug or had medications administered as part of your care in a hospital or clinic, you know that the costs can vary wildly. To better understand why this is the case, it’s helpful to look at some of the many factors at play.
The type of drug
The most commonly used drugs tend to be (but aren’t always) less expensive, since the demand is highest. But medications for complex, dicult or rare health conditions often cost much more. The costliest drugs, known as Specialty Drugs, typically require special handling, administration or monitoring, and need to be specially authorized by health plans in order to be covered.
The pricing decisions of drug manufacturers
The pharmaceutical companies that make and sell drugs set prices based on factors including the price of research and development, the costs of manufacturing, marketing and distributing drugs, and the demand for any given medication. There’s no set formula, so one company’s pricing strategies may be very dierent from another’s.
Agreements that pharmacy benefit managers (PBMs) and/or health insurance companies negotiate with drug companies
PBMs and/or health plans negotiate discounts and rebates on the prices of prescription drugs with pharmaceutical companies. The end cost for the drug, and member costshare based on the drug price, are determined by the results of those negotiations.
In other words, there’s no single, simple explanation for why a given drug costs a given amount. But without a doubt, the way your company chooses to structure its pharmacy benefits plays an important role.
Carve-in vs. carve-out pharmacy benefits: What’s the difference?
You’ve probably heard the terms “carve-out” or “carve-in” (or “integrated”) to describe Pharmacy Benefit Management (PBM) programs. Here’s a quick review of what they mean:
Carve-in: In this scenario, the health plan provider either administers the pharmacy program itself or subcontracts services to a PBM that works directly with the health plan. In the latter case, the health plan is still the point of contact for members; they don’t have a direct relationship with the PBM.
Carve-out: In the simplest terms, a pharmacy “carve-out” is when a plan sponsor contracts directly with a PBM to administer and manage prescription drug benefits for their employees. Carve-out prescription plans can be either fully insured or self-funded.
There are advantages and disadvantages to each approach. Carve-out PBM companies argue that by contracting directly with them, plan sponsors have more control and flexibility over their pharmacy benefits and may see potentially more aggressive discounts on drug prices and administrative fees. But employers who dig deeper often find that the benefits of a carved-in plan have a greater impact when it comes to cost, service and quality of care.
Pharmacy and medical care are deeply entwined
Pharmacy benefits are about much more than what happens at the drugstore counter. According to the Centers of Disease Control, three out of four doctor visits today involve treatment with a drug therapy.
Given the strong and growing connection between medical and pharmacy care, an integrated approach to benefit management can make a real impact on long-term cost and quality of care. Here’s why:
The benefits of complete patient data
In a carve-in pharmacy arrangement, your health plan has timely, accurate and complete data for both medical care and pharmacy that can help inform clinical strategies, identify care gaps and empower proactive intervention. For example, if a member appears to have diabetes based on their medical claims but, according to their pharmacy claims, isn’t filling their prescriptions as recommended, a health plan care manager can intervene. That intervention could prevent an expensive emergency hospital admittance or the need for high-cost medications that might have resulted from complications.
The advantages of strong provider relationships
At Tufts Health Plan, we’ve spent years establishing close, collaborative relationships with health care providers. As a result, we’re able to work with hospitals and healthcare systems in ways that carve-out plans simply can’t. For example, we can structure contracts containing pharmacy risk provisions that promote high-value, low-cost drug options that achieve quality outcomes. We also collaborate with our providers on developing guidelines and payment policies for new and emerging treatments and technologies, like gene therapy.
Regional focus for precision pharmacy coverage
The pharmacy benefits that make sense on the west coast or in the mid-Atlantic don’t necessarily make sense in New England. At Tufts Health Plan, our benefit designs and formularies are crafted by our regional experts with subspecialty knowledge, aligned with client needs and local provider practice patterns. Our Pharmacy and Therapeutics (P&T) committee, meanwhile, is made up of physicians and pharmacists from our regional provider groups and communities. We also consult with specialists from our provider groups and highly respected regional academic experts. At the same time, our members have access to their pharmacy benefits anywhere in the country, so they can get care where they need it.
A Better Member Experience
Given the complexity of health care, the simplicity of a carve-in pharmacy plan is a breath of fresh air: Members have a single card and a single point of contact for all of their health needs, whether for medical care or pharmacy. At Tufts Health Plan, this means that when members pick up the phone or send an email, our customer care sta can easily access both pharmacy and medical care data and help resolve issues or answer questions about every aspect of their care.
We also have the advantage of robust communications with our members and plan sponsors, allowing us to steer members toward more cost-eective methods for buying prescriptions, like mail order pharmacy. We also make it easier for members to manage chronic conditions: our value-based pharmacy program eliminates or reduces member cost sharing for maintnance medications.
The negotiating power that comes with volume
As a regional health plan with more than a million members and counting, Tufts Health Plan has significant bargaining power. The size of our membership allows us to negotiate aggressive discounts with our PBM administrators and on specialty pharmacy products—savings we’re able to pass along to our clients.
The choice between a carve-in and carve-out pharmacy benefit is one each organization has to make on its own, weighing the practical and financial concerns of each. At Tufts Health Plan, we believe—and experience has shown us—that integrated pharmacy benefits means lower overall costs for your organization and, more informed care for your employees. Talk to your representative or call us to learn more about pharmacy benefits from Tufts Health Plan.