A coalition of Minnesota employers has developed what it calls a “playbook” for tackling drug-price increases, a guide to working with vendors that highlights how health plan expenses have been inflated by the tangled supply chain for pharmaceuticals.
The local group’s effort comes as the Trump administration has proposed lowering consumer prices for medicines by changing the system of rebates between drug companies and pharmaceutical benefit manufacturers (PBMs), which manage drug benefits within employer health plans.
Rebates are a critical part of the problem, but they are also just one aspect of it, said Carolyn Pare, president of the Minnesota Health Action Group, a Bloomington-based group that published the 82-page guide last month. Beyond the drug companies and PBMs, the complex supply chain includes, to varying degrees, inefficiencies involving health plans, specialty pharmacies and health care providers.
“You can’t blame any one stakeholder or change any one thing and expect it to fix this incredibly convoluted system,” Pare said. “There’s a number of different things that would have to happen in several different places in order to truly bring costs down.”
In 2016, prescription drug spending in Minnesota came in at about $5.37 billion and was growing at an annual rate of 7.4 percent, according to the Minnesota Department of Health. The figures don’t include spending on many specialty pharmaceuticals that are administered in medical offices or hospitals and are often costly.
Four years ago, the rising prices of specialty pharmaceuticals captured the attention of the Minnesota Health Action Group, which for decades has coordinated employer efforts in the state to improve quality and lower costs. The coalition convened a group to study the problem, but it expanded the effort over time to look at all medications.
The playbook, which is available for free online at mnhealthactiongroup.org, is the end result of work by more than 40 individuals, employers and industry experts to dissect the pharmaceutical supply chain. The group says it spent 2,000 hours studying issues such as the lack of transparency with medication costs and strategies for working with health insurers and PBMs.
“Price is not the only issue, but it’s always an important issue when talking about value,” said Stephen Schondelmeyer, a professor in the College of Pharmacy at the University of Minnesota, in a statement.
“Individuals and organizations who pay the cost of prescription drugs need to know what they’re paying for and how much in order to manage the cost and compare it to the value,” said Schondelmeyer, who advised the employer group. “For employers, that means having access to individual claims data at all levels.”
Among other recommendations listed in the playbook, the employer group suggests that employers require health insurers to provide more detailed data about medication usage, noting that standard claims include codes from a system introduced in 1978 — when the average price of a prescription was $5, compared with $3,500 in 2015.
Employers also should work with insurers, the group recommends, to make sure they aren’t paying more for the same drug based on where it’s administered. For example, the coalition learned that when physician groups are acquired by hospitals, the groups can start billing as an outpatient hospital unit rather than a physician office, and thereby drive up the price.
The playbook also states that most of the long-established PBMs in the market refuse to agree in concept or practice to act as a fiduciary for the clients of their plan. So the guide highlights “pass-through” PBMs where all costs, rebates and administrative fees are fully transparent.
The playbook recommends that employers push for more transparency and better data from specialty pharmacies so they can see the “spread” between the pharmacy’s acquisition cost and the amount it charges to a PBM. It calls on employers to push drug companies for medication-specific information on rebates. Currently, rebate data is available only by manufacturer in aggregate, the group says.
“The playbook is intended for employers,” Pare said, “so they can look at this information and know what’s not working and what kinds of questions they need to ask.”