In the never-ending cost-cutting game, have you considered examining pharmacy costs to save money in your district? Every January, pharmaceutical companies raise prices on nearly 1,000 drugs, and this year was no exception. Pharmacy costs are often a buried expense that many districts consider a fixed cost, but thousands, if not millions of dollars can be saved.
It is well-known that health benefits are one of the top three expenses in any organization – including school districts. And many districts tend to be generous with benefits to attract and retain staff, helping close the salary gap that many teachers experience. But being generous with health plans does not have to go hand-in-hand with paying excessive costs for pharmaceuticals, whether traditional or specialty.
“Pharmaceutical costs have escalated at four times the rate of medical costs over the past five years,” said Scott Long, Executive Advisor for Indianapolis-based Apex Benefits. One of the underlining issues that continues to drag efficiencies is “spread pricing,” which has been a common industry practice over the years. Spread pricing is where pharmacy benefits managers (PBMs) act as middlemen, marking up the difference between what they remit to pharmacies and what they charge your district. Thus, the overall drug cost increases and is passed along to the consumer.
“We thought everyone was playing fair.”
Indeed, it is not a level playing field, according to Long. In addition to markups on both brand name and generic drugs, PBMs often take additional liberties with their pricing undetected by benefits managers. There are complex rebates that are often hidden from public view. And more than half of what’s spent on medicines goes to entities that don’t make the medicines, according to a spokesperson for Pharmaceutical Research and Manufacturers of America. However, the PBMs’ cost consistency vs. working with the fluctuating pharmacy prices, keeps PBMs in business.
Several states, including Minnesota, are initiating reforms. According to the Minnesota Department of Health, the governor and lieutenant governor started the Minnesota Price Transparency Act, which tracks the process of how pricing is determined along the supply chain. This includes investigating not only manufacturers, but wholesalers, PBMs and pharmacies. Their aim is to take the data and present it to legislators to help medication affordability.
How can school districts stay in front of rising pharmacy costs?
So, how is it possible for school districts to save money on pharmacy costs? Long suggests the following:
- Drive generic drug use. For every 1% of increased generic utilization, a 2.5% savings of total pharmacy spend is achieved.
- If you haven’t done so for several years or at all, audit your PBM agreement.
- Assemble a team to analyze the data and request concessions from your PBM. The data analysis is key to provide evidence on price discrepancies.
These tactics may already be in place; and may be all that you have bandwidth for, which is understandable. But it can be extremely beneficial to go beyond analyzing rebates to get at the real savings below the surface, according to Long. “One school district is poised to save nearly $1.5 million after digging deep and shining a light on how middlemen were excessively profiting from their employees.” Long confirmed that changes made did not narrow prescription choices at all or disrupt any other part of the plan; only the pricing became more affordable. And this is one great find for benefits managers everywhere.
For more information on auditing your district’s prescription benefits, reach out to me anytime at Charles.firstname.lastname@example.org.