Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans

Originally posted by The Commonwealth Fund in August 2019 by Lauren Vela

• Issue: Large self-insured employers and other health care plan sponsors are concerned about rising prescription drug costs. Formularies developed on their behalf by intermediaries like pharmacy benefit managers (PBMs) and health plans can ensure drug safety and support negotiating with manufacturers. But intermediaries can profit from these negotiations, creating financial incentives to include high-price drugs even if they offer little clinical value.
• Goal: Identify drugs that add waste on employers’ formularies, measure savings from removing waste, and identify best practices in pharmacy benefit management.
• Methods: Analyze drug utilization data from 15 self-insured plan sponsors — 13 are members of the Padfcific Business Group on Health (PBGH) — to estimate savings from reducing the use of drugs that cost more than their commensurate clinical value as compared to alternatives.
• Key Findings: Reducing the use of high-cost, low-value drugs could lead to $63 million in annual savings across the 15 plan sponsors. This represented 3 percent to 24 percent of overall pharmacy spending, depending on a number of factors.
• Conclusion: Plan sponsors could lower drug spending and out-of-pocket costs for enrollees by reducing the use of high-cost, low-value drugs on formularies. Savings could be achieved by improving pharmacy benefit design and management.

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