How pharmacy design can reduce employers’ costs while providing excellent employee coverage Featured

8:00pm EDT July 26, 2010

Editor’s note: This is the first of a two-part series. Next month’s article will look at the use of specialty drugs.

Employers’ health care costs are skyrocketing, and a major reason is employees who rely on expensive brand-name drugs when other effective options are available at a fraction of the price.

But employers can counter that tendency by implementing a well-designed and managed pharmacy plan, which can provide incentives for employees to use lower-cost options instead.

“A managed pharmacy plan takes advantage of multiple levers that are used to manage pharmacy costs, while at the same time delivering a benefit that provides safe and effective medication options for providers and members,” says Steven Marciniak, director of pharmacy for Priority Health.

Smart Business spoke with Marciniak about how a properly designed pharmacy plan can improve your bottom line while keeping your employees healthy and happy.

How does a managed pharmacy plan work?

A managed pharmacy plan breaks down most therapeutic categories and does a comparative analysis of the drugs available in each class, taking into account factors such as the relative effectiveness, side-effect profile, route of administration and cost.

Most plans have a pharmacy and therapeutics committee made up of pharmacists and practicing physicians who do the analysis. The committee starts with a therapeutic category, such as drugs that treat high blood pressure, and lays out the drugs available, including any subgroups. Then the committee analyzes those drugs — do all the drugs do the same thing, do they all have the same side effect profile, are there generic brands available? The therapeutic class is managed based on the committee’s decisions. Management may consist of step therapy, quantity limits, or other utilization management protocols.

What are the benefits of using a managed pharmacy plan?

The benefits are an absolute essential. While many plans are approaching an 80 percent generic use rate, about 80 percent of the cost is still attributable to brand-name drugs. A managed pharmacy plan positions drugs on the formulary in a way that drives utilization to the most cost-effective products.

How do tiered formularies work?

A tiered formulary works by assigning every drug on the formulary to a specific tier, and then creating co-pay or coinsurance levels that align with each tier. The most cost-effective drugs are placed on lower tiers, while more expensive drugs are placed on higher tiers. A typical five-tier formulary designation would be generic, preferred brand, non-preferred brand, preferred specialty and non-preferred specialty. The employees’ out-of-pocket cost would usually increase at each step of the tiered formulary.

For example, within the PPI (proton pump inhibitor) class of drugs, there are brand-name prescription drugs like Nexium and Aciphex. Also, Prilosec is sold over the counter, and Protonix is available generically. Clinically, the drugs all deliver similar results. There is no evidence that shows one is any better and all have a similar side effect profile. So, the company looks at cost and sets up step therapies. In a managed plan, that means you will first have to use an over-the-counter drug, and the company will pay for it.

If that doesn’t work, you move to the next step, to the generic and, if that doesn’t work, to the brand-name drug. But you have to go through these steps so you’re not using the most expensive product right out of the gate.

However, a drug would never be unavailable to a patient if it were better for him or her, even though it is more expensive. That’s why there is such detailed analysis that allows the plan or the employer to make these decisions.

How can using a tiered formulary benefit a company’s bottom line?

Tying higher member cost to higher cost of care often leads to a better-informed consumer. A tiered formulary tends to drive utilization toward lower-cost, just-as-effective medications. Not only do plan sponsors/employers have lower costs as a result, but members spend less, as well. And lower out-of-pocket costs can lead to regular refills and better compliance, resulting in a healthier work force.

For example, with conditions such as high blood pressure or cholesterol, people feel OK and are not as inclined to get a prescription filled, especially if it is $40 a month. But it’s obvious that if they get it filled every month, year after year, that person is going to be healthier, leading to a healthier work force and better productivity. However, if that person is paying $10 for a generic as opposed to $40 for a brand name, it’s easier on the wallet and he or she is more inclined to get that prescription filled every month.

Do tiered formularies work for every company?

There’s no reason a company shouldn’t utilize a tiered formulary, but communication is important to making it work. Showing treatment alternatives for a particular condition can raise employee awareness of those alternatives. Employers have a lot of latitude in establishing member cost share across the tiers. And a tiered formulary allows for more detailed utilization reports that employers can use for trending, forecasting and fine-tuning benefit structure.

Can a company create its own managed pharmacy plan?

Few companies have the expertise to develop their own managed pharmacy plan. Add to that the fact that the pharmacy benefit is very dynamic, with new drugs available every week, patent expirations and what’s around the corner, and employers should look for expertise on these topics with their insurer or pharmacy benefit administrator.

Steven Marciniak is the director of pharmacy for Priority Health. Reach him at (248) 324-2820 or