Prescription drugs are a major driver of healthcare costs for individuals in general, and for employers specifically. Prices increase an average of 4% a year and specialty drugs, already the most expensive category, increase by 21% per year. Politicians across the political spectrum have put drug costs at the center of their healthcare rhetoric, but little action has actually been taken. In the meantime, prescription drugs have become the second greatest healthcare expense for companies and represent roughly a third of total healthcare costs for employers.
Luckily, there are several ways that employers can reduce their spend on prescription drugs, including:
- Educating Employees
- Empowering Employees
- Providing Employee Incentives
- Using Restrictions as a Last Resort
- Managing PBM Relationships
The number one thing you can do to reduce prescription expenses is to make sure that your employees are well informed about their coverage, prescription options, and best practices. Education is free, for the most part, and will not only reduce costs but will also make employees feel better about their benefits packages. Many employees feel that their companies do not sufficiently explain their benefits and coverage, so they will appreciate any effort to provide them with more information.
Most importantly, educate your employees about best practices that will save themselves and, by extension, the company money. This includes telling them about preferred pharmacies, generic alternatives, mail-order services, and other cost-saving options. Healthcare costs are a major source of stress for employees as well as employers, so telling employees what they can do to cut costs will often be enough to cut your expenses significantly.
You should also make sure that your employees understand their coverage and the tools that are available to them. In the next few sections we will explore various structures and tools you can use to reduce costs. However, they will only be effective if employees use them, so education is still key.
Every communication regarding healthcare and reducing prescription drug costs should be framed in the context of the benefit to the employee. Hopefully all of the best practices and all of your policies will help your employees as well as the company – so make that the heart of your messaging. This can turn a potential morale crisis into a boost in employee engagement. Your employees will appreciate your efforts to give them the knowledge and tools they need to manage their healthcare and save themselves money – and may not even consider the possibility that you are also trying to save the company money.
While education is vital, it is often not enough. You need to provide your employees with tools and resources to help them keep the cost of care low. Best of all, these tools can be presented as new benefits, making your employees feel valued and appreciated.
An easy tool to implement is a prescription savings card such as Clever RX. Here at Launchways, we partner with Clever RX to help improve the benefits experience for our client’s employees. Clever RX cards offer increased savings at pharmacies and work in conjunction with most insurance. Users save up to 80% on prescription drug costs and generally pay less than most copays. More than two thirds of people can save money with a prescription savings card, especially during an era of rising deductibles.
In addition to giving your employees a prescription savings card, you can also offer them a comprehensive healthcare planning tool like HealthiestYou. Launchways partners with HealthiestYou to offer our client’s employees access to quality healthcare services at a fraction of the cost of traditional healthcare channels. Using HealthiestYou, employees can search for nearby pharmacies and in-network providers and easily compare the prices of copays/deductibles at each option to reduce costs. They also receive regular reminders about benefits and savings, and can review their coverage information at any time through the app, making your job of educating your employees that much easier. Perhaps the greatest benefit of HealthiestYou is their telemedicine platform. With telemedicine, employees have 24/7 access to teleconference appointments with board-certified doctors. With telemedicine, employees can receive prescriptions for common health concerns with a simple phone or video call. HealthiestYou and other apps can save your employees and your company time, money, and stress.
The last way to reduce healthcare costs across the board by empowering employees is to offer preventative benefits. If you encourage healthy employee lifestyles, you can avoid many costs from medical visits and prescription drugs. An Employee Assistance Program offers confidential third-party guidance to employees to reduce their stress, help them cope with their struggles, and hopefully keep them out of medical harm. More importantly, wellness programs can reduce “lifestyle diseases”, a major cause of medical costs in the US. Fitness competitions, standing desk options, and access to gyms or nutritionists either onsite or at a reduced cost can help keep your employees healthy and off of prescription medications.
Providing Employee Incentives
While restrictions should be avoided whenever possible, as we will explore in the next section, you can provide incentives to push employees towards prescription drug best practices. There are a few key incentives that are effective and not overly burdensome.
First, you can create additional tiers of insurance to enable employees opt-in for greater coverage. This can increase cost-sharing significantly, and offering increased care is an easy sell even if it is at a higher cost. In particular, consider creating a tier that covers specialty medications. Specialty drugs represent 38% of prescription costs but only 1-2% of total prescriptions, so focusing on them can often be the most effective way of reducing expenses.
Drug formularies offer another powerful incentive to keep the cost of prescriptions down. They are essentially lists of drugs that are eligible for increased coverage and available at lower cost to the employee. You can work with your insurance provider and pharmacy benefits manager to put together formularies that best meet the needs of your employees and your company. Formularies are effective because they do not reduce coverage so much as they encourage intelligent decisions by offering additional incentives for generics and other cost-effective drugs.
Using Restrictions as a Last Resort
Many common cost-cutting methods punish employees, shift costs from the employer to the employee, or reduce the level of care. When there are so many ways to reduce prescription drug expenses that actually benefit employees, restrictions should be avoided whenever possible as they can cause harm, or at least inconvenience, to employees and damage employee trust in your company.
Even the perception that you are cutting coverage can cause morale to plummet, driving poor performance and high turnover as employees look for a company that they believe will provide greater benefits. This is why it is important to emphasize the benefit to the employee throughout the healthcare conversation, and avoid policies that genuinely reduce coverage.
That being said, some restrictions are acceptable options to use as a last resort when you need to reduce costs significantly or the other methods have proven insufficient:
- Prior authorization before filling a prescription
- Mandatory mail-order for maintenance medications
- Medical justification for name-brand prescriptions over generic alternatives, or make employees cover the difference in cost between name brand and generics
- Step therapy: allow employees to access the drugs they need but require them to try more cost effective treatments before stepping up to more expensive drugs
Managing PBM Relationships
One of the most effective ways to cut prescription expenses is to work with a Pharmacy Benefit Management company, or a PBM. These organizations negotiate with pharmacies, drug companies, and health insurance providers to secure rebates for specific drugs and keep costs low for their clients.
Currently, 65% of companies use a PBM to reduce their healthcare costs. If you are not one of those companies, then you should look into how a PBM can save you money on prescription drugs. But if you already work with a PBM, you can increase your savings by putting your relationship under the microscope.
The first thing to keep in mind is that you should never sign a long contract with a given PBM and you should retain the right to renegotiate the contract at any time. This keeps them on their toes and ensures that they will continue to work to get you new savings. It also empowers you to take matters into your own hands to correct any abuse by the PBM.
Once you have secured the ability to monitor and correct PBM behavior, you need to actively manage your relationship. Examine your contracts regularly and renegotiate whenever possible to make sure that the needs of your company and your employees are being met in a cost effective manner. Also, do not be afraid to research current trends and price compare with other PBMs to make sure that your relationship still makes financial sense.
We have covered a lot of cost-cutting strategies in this article, so here are the key things you can do to reduce your prescription drug spend:
- Prioritize employee education around your benefits offerings
- Inform your employees of best practices and coverage specifics
- Empower your employees to save themselves time and money with tools like Clever RX, Healthiest You, and lifestyle benefits
- Encourage your employees to follow best practices with new insurance tiers and drug formularies
- Use restrictions as a last resort, because while they can be effective you risk alienating employees
- Partner with PBMs to reduce costs, but consistently manage your PBM relationship to maximize the benefit to your employees and your bottom line
- Work with an employee benefits broker that helps you build and implement a strategy to control prescription drug costs
In an age of rising drug prices, and higher co-pays and deductibles, many employers are cutting coverage to manage their costs. But the reality is that you can effectively reduce costs while helping your employees receive the highest level of healthcare.