harma-based reference pricing is proven to reduce non-specialty drug spend by an average of 20 percent annually. (Photo: Shutterstock)
The U.S. economy has been on a continuous rise since the Great Recession of 2009, making this the longest growth period since 1854, according to Bloomberg. However, a growing number of experts fear it won't be long until this trend reverses. In fact, a recent survey by the National Association for Business Economics found that a majority of economists anticipate the next recession will hit within the next two years.
While no one can fully predict when another economic downturn will occur, benefit managers and the advisors they work with know they are responsible for keeping organizations prepared for changing economic tides whenever they come. Many benefits professionals are targeting pharmacy benefits first, as they are easiest to manage when dealing with geographically dispersed employees, and are using pharma-based reference pricing as a proven way to address rapidly rising drug costs.
|Hone in on pharmacy benefits first
Forward-looking benefits professionals consistently pull different levers and implement different strategies to cut excessive programs and waste. Especially when dealing with a team that is spread out geographically, one of the big challenges benefits professionals face is managing the impact of the various hospitals and health systems the employees go to, as these provider organizations all have different economic microclimates that must be considered when looking at the benefits program holistically.
Pharmacy benefits, however, represent a unique opportunity to more effectively and uniformly manage benefits for a widespread population without discriminating against people that live, and receive care, in high-cost locations. Pharmacy benefits are consistently applied across different regions and are homogenous across the entire employee population, presenting a more straightforward piece of the benefits puzzle to zero in on and curb excess costs. Targeting pharma costs is also attractive to many benefits professionals, given drug prices continue to increase at staggering, unsustainable rates, with no sign of stopping.
|Uncover cost savings with pharma-based reference pricing
As more benefit professionals look for ways to reduce pharmacy spend, pharma-based reference pricing is emerging as a viable strategy that yields an immediate and dramatic impact on costs. In fact, a variation of pharma-based reference pricing, international benchmarking, has been a focal point of drug pricing plans from President Trump and House Speaker Nancy Pelosi alike. In these proposals, international benchmarking uses prices other developed nations pay for medications as the benchmark for prices in the U.S.
While international benchmarking continues to be deliberated in Washington, similar iterations of this concept, like pharma-based reference pricing, have already been adopted by benefit managers, benefits advisors, employers, and health plans to reduce drug spend. Instead of looking to international prices, pharma-based reference pricing focuses on pricing variations of medications on the organization's formulary. It uses advanced algorithm analysis to comb through the prices of all comparable medications, identifies the lowest-cost therapeutic equivalent available, and provides incentives to encourage employees to switch to the most cost-effective drug.
According to a study in the New England Journal of Medicine, pharma-based reference pricing is proven to reduce non-specialty drug spend by an average of 20 percent annually. Because this technique can be implemented relatively quickly and yields immediate and ongoing savings—all without requiring big adjustments to the overall plan, or relying on policy changes or major industry disruption—pharma-based reference pricing is really taking off as a viable solution across the U.S.
|The value of curbing excess spend
Reducing health care spend should be the goal of every benefits professional, especially as drug costs continue to increase at untenable rates. Brokers and benefits managers must take matters into their own hands to reduce spend and must be willing to continually evaluate the efficacy of the changes they are making and the solutions they are implementing.
Whether a recession hits in 2020, 2021 or beyond, the benefits professionals who have deployed strategies like reference pricing to rein in costs will come out on top and protect organization from whatever economic changes may occur.
David Henka is CEO of Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
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