Clients of Valhalla inquire regularly about the nature of their prescription drug benefits; These inquiries arise based on concerns about cost, personal experiences with the system, as well as pure curiosity. Given the continued trends in growth of drug costs, the complexity of the system, and the numerous opportunities to manage prescription benefits, this topic is worthy of attention!

Valhalla Business Advisors brings resources and expertise to help clients manage drug costs and optimize employee benefits; Solutions supporting these goals include contract and financial reviews, vendor-specific negotiations, and member navigation and advocacy services. Importantly, these solutions are mindful of possible impacts to member experience.

Who does what?

The prescription value chain can be somewhat confusing; The progression from manufacturer to patient includes numerous intermediaries and influencers including wholesalers, pharmacies, insurers, and pharmacy benefit managers (PBM). Each entity which “touches” the drug along the value chain will likely influence the cost in some manner.

Trends in prescribed drugs in the United States have evolved substantially over the past decade; Increasingly, the cost of specialty drugs is creating impact on plans, and the use of mail order fulfillment has expanded substantially. The nature of the drugs prescribed, as well as the source of fills, are two important considerations for any strategy contemplated for managing these costs.

Market structure

Any marketplace will be greatly defined by its level of concentration and competition; By any standard, the PBM market has become highly concentrated. According to HIR, 80% of all prescription claims were adjudicated by three firms: CVS/Caremark, Express Scripts, and Optum.

Note that each of these PBM entities has been vertically integrated into organizations which own large insurers: Cigna owns ESI, United owns Optum, and Aetna and Caremark are both owned by CVS. (And Prime is owned by a group of Blue Cross Blue Shield providers!)

What can we do to optimize our pharmacy benefits?

Valhalla Business Advisors recommends the following as “Best Practices” for managing prescription drug benefits:

• Data review – the beginning of any strategic planning is to evaluate the current state of costs. An analysis of utilization, trends, and costs, from both population health and drug cost perspectives is an important inititial step.
• Plan design and formulary review – the second step of any strategic planning is to evaluate the current plan design and formulary structures. Included in this analysis should be an evaluation of high cost, low value drugs; An example of a toolkit by which this analysis can be conducted is here.
• Pharmacy contract review – a total cost analysis should be conducted on any PBM contract in place, or considered, by a client. This analysis should review items including, but not limited to, unit costs of drugs, treatment of rebate cash flows, administrative expense, dispensing fees, and other fees/credits associated with data-feeds and bundled (or unbundled) contracts. Importantly, contracts with PBM vendors should include specific confirmation of the extent of “spread pricing.”
• Review innovations – based on the size and complexity of the marketplace, it is no wonder that there is constant entry and exit by firms attempting to innovate and disrupt the incumbent players. These strategies, from firms like Payer Matrix, Mutual Rx, Capital Rx, Good Rx, and Mark Cuban’s Cost Plus Drug Company, are all worthy of review and consideration. Each may have a space in the market today; And each may be disrupted tomorrow but another up and coming solution! Valhalla loves the aspects of the business related to monitoring for innovative solutions which help clients and patients!
• Education / Consumerism – it is a good idea to invest into member education about prescription benefits, including nuances of tools available through your plan, the reason for plan design decisions, and resources available to support members in their navigation of the system. The system is relatively complicated and people appreciate help!

It is especially important for strategies impacting drug expenditures to keep on top of market innovations and emerging trends; This marketplace is changing fast enough that it should, at a minimum, justify a review as infrequently as 1x annually.

The solutions listed above are not representative of all solutions reviewed and considered by clients of Valhalla. If you would like to discuss how Valhalla would approach partnering with you and your team to evaluate and optimize your drug benefits and vendor relationships, please reach out to either Stuart or Jens to discuss further!

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