Drivers of Change in Pharmacy Benefit Management

AJPB® Translating Evidence-Based Research Into Value-Based Decisions®May/June 2014
Volume 6
Issue 3

Executive-level pharmacy leaders in US managed care organizations identify how healthcare reform is driving changes in pharmacy benefit management.

The Affordable Care Act (ACA) and increasing regulation has had a significant impact on healthcare delivery. Changes continue to unfold across all segments of the healthcare continuum. In many areas, regulation and guidance have been silent or vague on pharmacy care. The purpose of this study is to identify the drivers of change in pharmacy benefit management in the next 18 to 36 months and articulate strategies for plan sponsors to adapt effectively to these drivers and continue to provide economically sustainable drug benefit programs.


A qualitative research study was conducted in January 2013 with pharmacy leaders who hold executive-level positions in US managed care organizations (MCOs) and other healthcare alliances. The 11 respondents provided written answers to research questions about:

  • Impact of reform to date on medical services, pharmacy, and health and wellness services;

  • Impact of medical loss ratio (MLR) requirements on pharmacy;

  • Opportunities that accountable care organizations (ACOs) can offer to improve the practice of managed care pharmacy;

  • Impact of health insurance exchanges (HIExs) on pharmacy benefit management; and

  • Action steps for drug benefit plan sponsors to ensure that they can provide drug benefit programs in 2014 and beyond.

The written responses to the research questions were synthesized, reflecting differences of opinion, uncertainty of future events, and unknown outcomes associated with changes in the marketplace. Respondents reviewed the research findings together via conference calls in the second phase of the study to arrive at a consensus on the study findings.


This section discusses the detailed research findings. Verbatim comments of respondents are italicized.

Role of Pharmacy Evolves, Increases in Importance

The role of pharmacy will become more prominent in care delivery as healthcare reform unfolds.

“Pharmacy will be forced out of its silo and into the care team.”

Pharmacists will be tapped for their cognitive expertise and become integral members of patient care teams. With greater accountability for patient outcomes, providers will increasingly rely on pharmacy for patient-specific medication adherence information (particularly for chronic and complex conditions), identifying and managing gaps in care, and providing medication reconciliation at care transitions.

Successful ACO models demand more integration—of data, incentives, care plans, and healthcare services. Integration of medical and pharmacy data will be essential.

“The time has come for the physician community to stand up and be counted. We have always asked for more control of how we practice medicine. The ACO concept offers a unique opportunity for us to ensure that the care we deliver is high quality with better outcomes and at reduced costs, while enhancing the patient experience. This means that physicians can no longer be agnostic to costs whether they are in the medical arena or pharmaceutical arena. The physician needs to leverage both clinical and technological tools to enhance the clinical enterprise. The days of serving in isolation are over. We need to be interlinked together and use the infrastructure that the ACO offers in offering care management to our patients.”

Healthcare reform presents opportunities to elevate the role of managed care pharmacy by showcasing its best practices and bringing them to the medical side of healthcare.

“The discipline and effectiveness of drug pricing strategies on the pharmacy benefit side of the business will continue to migrate to the undisciplined management strategies under medical benefits. Pricing, preferred drug strategies, rebates, and utilization management are much more effective on the pharmacy benefit. I anticipate that health plans will begin to apply the pharmacy benefit strategies on those drugs managed on the medical benefit.”


“I believe that pharmacy already has a quality reputation. As most attention is not currently focused on pharmacy, this is pharmacy’s opportunity to be proactive. As limits to patient cost sharing are implemented, pharmacy’s focus on helping programs/plans work within medical loss ratio requirement and within global budgets will be significant.”

Other emerging challenges include:

  • Growth in specialty drug expenditures triggered by higher prices, more therapeutic options, and growing utilization;

  • Member “churn” in and out of Medicaid and subsidized insurance plans; and

  • Quality being secondary to immediate demands of health reform implementation.

Drivers of Change in Pharmacy Benefit Management

In addition to the evolving role of the pharmacist, there are many other issues that will drive change in pharmacy benefit management as illustrated in the


. Drivers are listed in descending order of importance in each category.

Emerging Models of Care Integrate Pharmacy, Medical Care

The promise of fully integrated healthcare reform should translate to improved patient care with economic benefits for all stakeholders. The respondents commented on the growing impact of MLR requirements, ACOs, and HIExs. They believe that there will be continued pressure to reduce unnecessary administrative costs that could adversely affect MLR requirements, although pharmacy is not perceived as a huge percentage of overall cost. More costs of drug utilization management programs could be attributed to MLR if the quality management aspects of these types programs had stronger measurement and reporting to articulate their clinical value.

The role of pharmacy and pharmacists will become more prominent going forward. Physicians are, to varying degrees, beginning to appreciate that role. Clinicians working within integrated health systems already utilize pharmacy expertise to optimal or near-optimal capacity. The challenge remains with physicians practicing outside of truly integrated delivery systems, not only in regard to pharmacy but to overall care coordination. Further, there is a range of viewpoints about whether ACOs are an end point or simply an important step to transitioning to a future, yet-to-be-defined improved model.

Much of the current regulatory guidance on ACA implementation does not address pharmacy issues for ACOs in HIExs in much detail. Furthermore, separation of risk among payers and providers within government-prescribed ACO models has the potential to create perverse incentives: pharmacy risk resides with payers, whereas medical risk is shared with, or shifted to, providers. The belief is that commercial ACO models will follow the same approach for now, but eventually they will move toward integrating pharmacy and medical in terms of financial risk. Some plan sponsors (integrated health systems and MCOs) are already able to successfully integrate these benefits/risks, but other organizations where pharmacy and medical have historically been siloed find it difficult. For these organizations, the “proof of concept”—a unified effort is better than the sum of individual parts—may help speed integration efforts and bring policy makers’ attention to the issue.

The measures of success for the “proof of concept” ideally should follow the triple aim framework addressing patient experience (quality and satisfaction), population health, and cost. Attribution of success to individual interventions or components of care (pharmacy, medication adherence, etc) is not seen as essential, as it might detract from the overall goal.

Implications for Strengthening Sustainability of Drug Benefit Programs

Aggressive management of the drug benefit and of the pharmacy network are seen as critical to the ability of the MCOs’ to provide affordable access to drugs.

“Aggressive formulary management. Rebate optimization for branded drugs. Continued push toward generics. Step therapies broadly implemented. Increasing cost sharing with members as appropriate. Mandatory participation of members in specialty drug programs.”

Efficient execution of value-added programs such as medication adherence programs should result in overall cost reduction, but this depends heavily on integrating pharmacy and medical claims and data capture systems. These integrated systems are prerequisites to new types of contracts that will include outcome guarantees and mechanisms to attribute value to different stakeholders for specific activities and/or outcomes.

“Plan sponsors should be expanding their information technology resources or information partners to measure more than pharmacy cost, generic prescribing, etc… their clients will expect measurement of quality which includes more than just pharmacy claims. Integration of pharmacy, lab and encounter data will become common offerings of PBMs (pharmacy benefit managers).”

One respondent suggests that standardization and simplification of benefits and administration will be necessary, echoing similar observations about the impact of exchanges on pharmacy benefits.

“Ultimately, the most important aspect of the HIEx world is premium price over the next few years. Plans must offer a competitive priced benefit with the right amount of drug coverages that are not overly burdensome for consumers. UM (utilization managment) criteria will be permissible, but the administration of the criteria needs to be consistent and simple. For example, PAs (physician assistants) should be considered only tied to diagnosis and labs and take out the multiple levels of questions and complexity.”

Another participant cautions about the many hard-tocontrol external risks that may frustrate payers’ efforts: unabated cost trend in specialty drugs; potential for costshifting from the public to private sector; and benefit designs that can deliberately force members out of employer- sponsored plans onto health insurance exchanges, resulting in “lemon-dropping” of older and sicker workers onto the exchanges.

“In addition to the pharmacy costs, the aggregate cost of medical coverage is a threat to pharmacy coverage and other healthcare (eg, dental and chiropractic care). While we have not yet seen federal guidance on large group minimum value and minimum essential coverage, what we learned from PPACA is that large groups do not necessarily have to cover all of today’s plan services—they just can’t have any lifetime or annual maximums on those services that are part of the essential benefit set and the plan value on covered benefits must meet the actuarial value of 0.60. Thus, a likely way for groups to cut costs, yet still avoid employer mandate (“shared responsibility”) taxes, will be to carve out services when allowed. For self-insured business not subject to state mandates, some employers could start with chiropractic or durable medical equipment. In time, self-insured employers in industries where they do not have to use benefits to attract and retain skilled workers could eventually carve out specialty drugs, brand drugs, or maybe even all prescription coverage. The rationale here would be that employees needing these services would be better off buying guaranteed issue individual coverage.”


“This is a pretty extreme benefit approach and not something we will see for 1/1/2014. It’s also likely that there could be future legislative action to eliminate the ability for plan sponsors to remove coverage for pharmacy benefits entirely, but in the meantime, given the cost pressures, this is a possibility. To avoid it, we believe selfinsured plan sponsors should be looking at more restrictive formularies and networks and health and wellness initiatives to bring down their pharmacy spend. Another concept is a more ‘defined pharmacy benefit’ approach in which the plan only pays up to a certain fixed amount for prescriptions—this approach would require excellent transparency tools and would likely not be well received by members relative to other approaches.”

Another respondent takes a longer view, acknowledging uncertainties and challenges:

“Don’t panic; don’t overreact as everyone is in the same ‘boat.’ There are so many variables in 2014: [W]hat will be the cost of plans, how much enrollment will the exchanges really get , will the young, low cost members stay out, what will small employers do, drop coverage etc. Beyond 2014, there are several other significant milestones that are going to impact medical benefits, including pharmacy benefits. Those milestones are health insurance being able to be sold across state borders by 2016, large groups being able to join the exchange by 2017 and the 40% excise tax on high-cost, employer-sponsored health benefits in 2018.”

Implications of Findings

Healthcare stakeholders must remain vigilant about managing costs with all of the tools in the arsenal. The role of pharmacy is evolving and increasing in importance. There is an emerging market imperative to integrate pharmacy and medical services to optimize not only patient outcomes but the economic return on investment.

A wave of macroeconomic variables is flooding the market, dramatically impacting pharmacy benefit management. Waning employer commitment to providing health benefits may trigger not only higher overall healthcare costs but adverse selection in group and individual exchanges. Familiar managed care techniques to counter thes forces and their impact on pharmacy include:

  • Narrow pharmacy networks

  • Integrated care programs targeted to chronic diseases

  • Medication therapy management

  • Trend management tools for specialty pharmacy drugs

  • Measurable end points for clinical programs to monitor success

  • Innovative pay-for-performance models to reimburse pharmacists for cognitive services

Next Steps for Drug Benefit Plan Sponsors

The sponsors of drug benefit programs in all segments of healthcare must continue to look to the future. Critical action steps include:

  • Remaining nimble as healthcare reform unfolds

  • Continuing to plan to ensure your organization is equipped to respond to market dynamics

  • Monitoring emerging trends in healthcare, population management and outcomes measurement

  • Engaging members today to be prepared for greater member responsibility in the future

  • Gaining greater understanding of how to use health data so there is better comprehension of the populations for whom they manage care and/ or sponsor benefit programs

  • Developing the ability to integrate data from a variety of sources across the entire care continuum to facilitate a more fully functional integrated healthcare system

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