Karthik Ganesh

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A perfect trifecta of big, big, and big has put an out-of-control bend in the healthcare cost curve.

This bend is affected by drug costs driven by big pharma, it’s manufacturer-driven, has rebate-based incentives propagated by big pharmacy benefit managers (PBMs) and big healthcare companies merging to create even bigger companies that create a “watch my other hand” distraction. This continues to take focus away from the proactive pursuit of appropriate pharmacy spend.

The problem is, the bigger these companies, their treasure chests and their shareholder requirements get, the less the incentive for them to embrace approaches that will truly disrupt the cost curve and create greater prescription affordability.
	
	We need broad and disruptive thinking, not point solutions that haven’t worked for years.

The large PBMs, and some benefit consultants, will say that PBMs have been declaring flat trend for a couple of years. However, this declaration can be made only by artificially deflating the gross prescription spend via an unpredictable rebate check to get to a more manageable net-spend number.

This deflation of the trend via a rebate check does absolutely nothing to ensure the drug mix for an employee population is appropriate. The bottom line is that industry-standard clinical and care management programs have had a negligible impact on both containing prescription costs and driving appropriate patient-centric utilization, as demonstrated by the persistent dysfunction in pharmacy spending.

, or 10% of U.S. healthcare spend, and growing.

Prescription drug costs are now 25% of a plan sponsors’ healthcare expense.

The number of patients on seven or more drugs (polypharmacy) is up by 200% over the last 20 years.

Twelve percent to 18% year-over-year increase in gross prescription spend for plan sponsors.

This calls for a bold and different way of approaching the care management challenge. For example, a different way of thinking about managing the health of the employee population.

Open Medicare Data Helps Uncover Potential Hidden Costs of Healthcare

Inadequacies of current clinical and population health strategies


	
	We’ve all heard, nationally, 5% of the population is driving 50% of healthcare costs. Population health management has been a promising approach; by targeting costlier sub-groups, we can drive down costs with much more return on investment.
	
	There’s wisdom here, but the execution, thus far, has been self-limiting. Here’s why:

PBMs and health plans continue to approach population health management from the standpoint of condition or disease management, with the clinical strategy focused on specific high-cost conditions.

PBMs also continue to do what they’ve always been doing from a clinical perspective-standard utilization management programs like prior authorization, step therapy and quantity limit management, with less-than-useful specialized clinical programs that operate with a condition-specific lens.

Focusing on high-cost conditions based on typical industry trends means a natural exclusion of other utilization that could not only have a higher short-term spend component, but also be based on comorbidities that could drive up higher costs in the future.

Finally, a focus on specific conditions based on a PBM’s clinical program suite means a lack of employer- or plan-sponsor-specific personalization as it pertains to the management of their overall clinical and financial outcomes.

Not all employee populations are alike and this complete lack of creativity in approaching population health management has resulted in plan sponsors consistently experiencing a 12% to 18% gross pharmacy trend.

Practical yet innovative Rx population health management solutions

True industry disruption requires a tailored approach to population health management, one that accounts for the very specific needs of a plan sponsor’s membership and their unique risk profile. This approach needs to be divorced from any preconceived notions of specific high-cost conditions and their ability to drive spend. What is needed is a holistic approach that addresses the higher risk levels within that specific population in a completely condition-neutral fashion.

Data consumption includes prescription and medical claims with behavioral health claims and lab results being important additions, if available. Social determinants data is a huge plus if available and consumable by the population health management platform.

Stratification and creation of a risk profile for the distinct employee population that factors in morbidity and cost implications, like clinical and financial risk considerations.

Clinical intervention strategy includes:					

Physician profiling to better understand behavior change motivators specific to that prescriber.

Evidence-based research to confidently recommend a therapeutic switch.

Personalized interventions that are targeted and tailored to the members with the highest risk profiles-across morbidity and predicted cost.

Deeper research and execution of physician engagement and associated behavior change strategies to be able to have a truly consultative relationship with the prescriber and drive a differentiated outcome.

Aligned communication and change management across all stakeholders that includes the physician, member, plan sponsor and benefit consultant to ensure congruence in planning, messaging and execution.

The output of a well-executed population health management strategy can reap major dividends in the pharmacy benefits space where results can be conclusively measured and monitored. This approach to population health is also congruent with the core philosophy of value-based care which is about doing the right thing in an aligned manner across all pertinent stakeholders.
	
	The results of this approach can drive a 2% to 3% multi-year gross pharmacy trend with consistent clinical outcomes, 93% medication adherence and better managed gaps in care.

, a boutique risk-bearing PBM with a differentiated population health management solution and 2.3% book of business trend.

Articles

Runaway drug costs call for a new approach to care management, such as a different way of thinking about managing the health of the employee population.

Opinion: Bending the Pharmacy Cost Curve with Population Health Management

The concept of value-based care has begun to percolate through hospitals, doctor’s offices, and even Medicare, the behemoth of U.S. healthcare. It’s time for this principle to be embraced by PBMs.

Essentially, transitioning to value-based care is moving from a volume-based revenue model-getting paid for how much is sold-to an outcomes-based one-getting paid for how much is saved and for improving health. A value-based healthcare entity essentially takes on the financial risk of not hitting their volume-based revenue targets if the outcomes or “value” doesn’t hit adequate thresholds established by the Centers for Medicare & Medicaid Services or other payers such as commercial insurers. Value-based entities make less money if they don’t do well against those metrics. They’re therefore incentivized to do 

But the momentum around value-based care and the corresponding reimbursement/revenue model remains predominantly focused on hospitals, health systems and physicians. Pharmacy spending, 

, or 10% of U.S. healthcare spending, continues to take a back seat.

Because PBMs play such an essential role today, their evolution to a value-based model is critical for bringing down healthcare costs-managed healthcare organizations cannot do it on their own. Getting bigger via vertical integration isn’t a solution in itself; we need to rock the system to shift the longstanding paradigm that’s historically improved shareholder returns, but not overall health care costs or outcomes.

Value-based care is extremely smart for commercial insurers from a cost management standpoint, but it has done very little at face value to control increasing healthcare costs for employers. The total cost of healthcare in 2019 is estimated to 

, according to the Society for Human Resources Management. Health benefit costs are increasing at twice the rate of wage increases and three times that of general inflation. Prescription drugs account for approximately 25% (and growing) of that price-point, with spend on specialty drugs growing at double-digit rates. Meanwhile, the strengths of the newly merged organizations now place all of the top three PBMs 

What incentive exists, though, for these financially-abundant organizations to move the needle on employer-related pharmacy spend? The traditional rebate-based model between manufacturers and PBMs has been immensely successful. But for a plan sponsor, celebrating a higher rebate is like evaluating your weekly grocery spend by how much you saved by being a club member, not by how much you spent overall and whether you bought appropriate food. Even if the government pushes a change in rebates, it will be optical at best, with the arbitrage-based financial model (buy for X, sell for Y, and retain the delta) thriving under a different name.

How will that help employers struggling with rising pharmacy benefit-related costs?

This is where the need for a value-based PBM model becomes critical. Here are the characteristics of a value-based PBM model:

Financial model that is not based on discounts and rebates but rather on driving the right financial and clinical outcomes, i.e., built on sustainability of spend and trend.

Value proposition based on fundamentally prescribing and filling the “right” drugs versus the drugs that have a higher rebate value; this in turn drives towards the most appropriate utilization mix for the membership over time thereby lowering gross spend.

Drives towards the truly lowest net cost (PMPM-based) as opposed to optically managing it via higher rebate checks.

Willingness for the PBM to take downside financial risk in their contractual relationship with the employer, i.e., putting money at risk if the PBM doesn’t hit the promised financial guarantees.

A business model that is based on “doing the right thing” with no external market pressures (e.g., manufacturers)-in this case 

doing the right thing not just sometimes or most of the times, but every single time

Finally, a model that realizes that the PBM is a thriving part of the healthcare continuum and requires an unwavering focus on clinical excellence with the pharmacist coexisting with the physician and registered nurse as a part of the patient’s care team.

The reason we believe value-based care and reimbursement models will work in the hospital space is because current market conditions have made it critical for providers (hospitals, health systems, etc.) to be willing to take on a level of financial risk. Average operating margins for health systems declined by 38.7% between 2015 and 2017 with operating revenue falling to 5.5% in the same timeframe, according to a recently-published 

 Hospitals and health systems need to improve their margins and have realized that supporting a reimbursement model based on value is a vital means to that end.

Similarly, a true value-based PBM model is going to come from players who are hungry to showcase themselves as the “right model” and as a result are willing to put their money at risk to prove the same. While the extremely large players may talk about value-based PBM models, their incentive to disrupt themselves in the pursuit of proving value is markedly lower. They are already incredibly wealthy organizations and if the model that’s driving that kind of financial success isn’t broken, there’s really no need to fix it.

The traditional PBM model earns the PBM much more money than it saves its clients. Moving PBM models toward value ensure employers and other plan sponsors have partners who are more appropriately incentivized to take care of both their employees and their pocketbooks.

Karthik Ganesh is chief operating officer at 

Author | Karthik Ganesh

Articles

Opinion: Bending the Pharmacy Cost Curve with Population Health Management

Opinion: The Need for Value-Based PBMs