Missed understanding

The reason for the discrepancy between what is being offered in the market and what is being demanded by plan sponsors and their advisors is simple: there remains an inadequate understanding of drug benefit plan spend. The lack of under-standing is multi-dimensional and has been driven by an absence of necessary information and difficulty in interpreting the available information by plan sponsors and their advisors. This is leading to the stalemate that has given way to the default options of either maintaining the status quo of the plan or simply shifting costs to plan members.

There’s good news. The information needed to break the standoff and usher in an era of responsible value-based plan designs that do not adversely impact plan members is readily available. But here’s the bad news: plan sponsors and advisors need to be actively seeking that information; they have to take the initiative to understand their own experience at a whole new level.

Unfortunately, plan sponsors still lack understanding when it comes to the following:

• current cost drivers within the plan’s experience;
• where the existing inefficiencies lie and what they are costing the plan;
• the plan’s spending and utilization trends moving forward under the existing plan structure because plan data is retrospective in nature; and
• the required solutions, how the solutions will be implemented and the impact on plan members.

The tools
Some industry experts will suggest that understanding benefits plan spend is old news and that nothing ever changes. Others will recognize that all of the pieces necessary for success exist. These pieces simply need to be connected in order for transformation to occur. Before exploring how plans can successfully extract the needed information to understand their drug plan spend, obtain support for required change and successfully execute the change, it is important to recognize this.

Flexible adjudication technology – This is the most underrated and underreported success story in drug plan management in recent years. Today, there is widespread capability across the country to administer, manage and execute more sophisticated plan designs (e.g., multiple tiers and/or customized formularies) using top-notch technology.

Access to plan-specific transactional-level claims data – Most plan sponsors and advisors think that the only data available is contained within aggregate-level drug reports such as top 50 or top 100 drugs by cost, which often provide limited value and insight. Many plan sponsors are unaware of the more detailed, plan-specific data that is available from their plan administrators (i.e., transactional-level data), from which they can extract far greater understanding.

Rise of the pharmacy partner – Up until 2010, very few pharmacy groups—Managed Health Care Services Inc. (MHCSI) is an exception—had a concentrated focus on working with employers to help bring awareness to plan costs and look at solutions to manage plans.

Thanks to outside forces (i.e., drug pricing reforms) that have made the pharmacy world wake up to the reality that there is more to the business than public drug programs, the industry has seen the rise of the pharmacy partner. Leaders such as Costco Pharmacy, MHCSI, Express Scripts Canada and ArcisRx/Alliance Pharmacy Group and, slowly, some of the established brick-and-mortar chains are bringing new services and offerings to employers that add value and help control plan costs. For example, Costco has brought clinic offerings to employer partners for years. More recently, Loblaw Companies Ltd. has begun to position dietary services and diabetes management at the forefront of its employer offerings.

At one time, the drug plan market segment was broken: distribution was entirely controlled by retail pharmacies that had economic interests that were not aligned with plan sponsors. New preferred provider network models are changing that, and the timing is critical because the lowering of generic drug prices—and hence the profitability of dispensing generic drugs for most pharmacies—means that a new group of misaligned economic models is evolving.

Competition in plan administration – A carrier can’t differentiate with life insurance and with AD&D, and it is difficult to differentiate with dental. What the insurance, third-party administrator (TPA) and PBM industries have realized is that you can differentiate dramatically within the drug plan realm. As a result, there are more resources devoted to differentiation within the space.

In the past two years, there seems to have been more novel carrier and PBM- and TPA-based drug plan management programs rolled out than in the decade before that combined. Examples include customizable tiered formulary designs, evidence-based formularies, specialty drug management, the ability to establish customized claims pricing controls and narcotic claims management. There is also differentiation in what these offerings focus on.

Changing focus of manufacturers – Historically, brand name pharmaceutical companies have been concerned with marketing their products to physicians and ensuring listings
on provincial formularies. By the same token, generic pharmaceutical companies have been entirely focused on building relationships with retail pharmacies in order to secure shelf space as the primary supplier of a commoditized product.

The landscape is changing to the benefit of plan sponsors. Brand name pharmaceutical companies are more focused on showing real-world value to plan sponsors to avoid plans creating barriers to accessing more expensive products. Established leaders in the area of building relationships with plan sponsors (think Sanofi and Abbott) are starting to see some of their peer companies follow suit. Similarly, generic pharmaceutical companies such as Apotex and Teva are becoming aware of the low generic penetration rates in Canada within private plans and are looking to work more actively with plan sponsors to enhance their market share.

Greater resources – A decade ago, the number of pharmacists who worked within the group insurance industry for carriers or advisory firms could be counted on one hand. There were pharmacists managing programs at PBMs, but there were very few experts with deep drug knowledge that intersected directly with plan sponsors.

Today, there has been a wave of pharmacist hires in the group insurance and benefits consulting industries. Nearly every major carrier and benefits consulting firm has jumped on the pharmacist bandwagon. There are far more resources today to assist plan sponsors that actually understand medications, and that understand the impact of certain decisions on access to medications and plan member health.

The need for better understanding
These tools are all well and good, but there exists one other hurdle to move from identifying the problem to implementing the solution: the need to construct a business case for change. The person in a company who is in a position to approve plan design changes—whether that is the president of a small or medium-size business, the head of HR, the chief financial officer, the vice-president of finance or any combination thereof—requires the right information. There is a great deal of data in play within the industry, but that data needs to be transformed into meaningful information that can be used for strategic decision-making ability.

The following are considerations for how plan-specific data can be leveraged to build the plan sponsor’s case for change, prioritize its needs, assess the suitability of given solutions and make decisions required to properly manage the benefit
in the future.

• Avoid relying solely on high-level (i.e., aggregate-level) data. Seek granular transactional-level claims data. Even for smaller plans, more detailed information is available that will give a more robust picture of the current landscape.
• Focus on using transactional-level claims data to address cost drivers and current areas of inefficiency that are adding no value to members or the plan; assess contingent cost and utilization liabilities evident when considering the demographic and disease-state profile of the plan; measure the performance of the current plan design in containing costs; and use the current experience and key saturation metrics to complete plan-specific predictive cost models.
• Use the same data to determine key population health profile considerations and establish baseline metrics that can be used to measure the success of implemented programs and plan design changes.
• For every hour spent on acquiring plan information, spend three hours on the interpretation of the numbers, priorities and next steps. This area is very complicated, and even perceived basics (e.g., tiered formularies, claims pricing management) can be complex. Take time to explain the details to decision-makers.
• Avoid the “no” trap. While the tools needed to execute better plan management exist, the level of awareness and understanding of these tools is not uniform. Don’t give up at the first no. Find somebody who understands what you are asking for and don’t be deterred.
• Don’t worry about perfection. Plan changes that are 80% successful in achieving predetermined targets in Year 1 are already miles ahead of what the old experience would have looked like.

Best practices in drug plan management require the use of the preceding information for informed decision-making and the meaningful management of this benefit. Given the widespread availability of tools to enact change, the only thing holding back plan sponsors is plan sponsors themselves.

Mike Sullivan is president of Cubic Health Inc. msullivan@cubichealth.ca

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