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How small & medium health plans can control rising Rx Costs

Published Date
Author Sandeep Ambatte

Healthcare Spending in the US

In 2020, U.S. health care spending increased 9.7 percent to reach $4.1 trillion – a much faster rate than the 4.3% increase experienced in 2019. Of this, $359 billion was spent on prescription drugs, around 8% of the total expenditure.

Pharmaceutical Industry & Brand Drugs

The pharmaceutical industry in the US has many stakeholders and a wide variety of pricing structures, rebates, fees, discounts, and other types of payments. Over the last few years there has been a steady increase in Rx costs which has triggered renewed calls for greater visibility into the pricing, distribution, and payment process. More than half of total spending on brand medicines went to the supply chain, middlemen and other stakeholders in 2020 according to an analysis from the Berkeley Research Group (BRG).

The analysis by the BRG group illuminates how different stakeholders realized payments through the 340B program.

340B Program Overview

This program was originally enacted by Congress as part of the Veterans Health Care Act of 1992. The intention of this program was to provide assistance to the low income and uninsured population. The program provides hospitals and medical care providers discounts on outpatient drugs as rebates similar to Medicaid Drug Rebate Program.

Let’s take a look at how the program has evolved over the years:

  1. Participation in the Health Resources and Services Administration (HRSA) grew by a staggering 4,228% during the period from 2010 to 2020
  2. Now the 340B program is the second largest federal Rx program behind Medicare Part D
  3. While the gross expenditure of generic drugs has shown a decreasing trend from 2015, brand drug sales show an increase starting from 2013 due to the 340B program
  4. There is an exponential growth in hospitals and their outpatient clinics enrolled in 340B program from 2013-2020
    • The count went up from 3,994 to 94,000 Pharmacies at outpatient clinics
    • The margin of profits for brand drugs increased 12X during the time period from 2013 to 2020

The Pharmaceutical Supply Chain: Key Findings

  • Manufacturers retain just over 37% and 49% of total spending on all Rx drugs in general and brand drugs respectively
  • 2020 marked the first year when non-manufacturing stakeholders like pharmacy benefit managers (PBM’s), health plans, facilities, pharmacies, and others received more than 35% of spending on brand drugs between 2019 and 2020
  • The growth of the 340B program resulted in an increase of 1,100% in the amount that facilities and pharmacies received from the sale of brand drugs between 2013 and 2020

Impact on Smaller Health Plans

Small and medium businesses makeup 409 of the country’s 493 health insurance plans. A lot of the plans are relatively new, with Medicare Advantage the growing trend. 35 percent of small and medium businesses offer a Medicare Advantage plan. Another 35 percent offer Medicaid, with 26 percent of that business in managed Medicaid.

While the larger health plans have the leverage to have contracts with more pharmacies and facilities with 340B Program coverage, the smaller plans might find it difficult to get contracts with those facilities and pharmacy chains. This in-turn leads to more out of pocket cost and more reimbursements to PBM’s from smaller health plans.

How can HealthEdge Help

HealthEdge provides health plans with the option to bring in pharmacy data to HealthRules DataLake. This data can be used to generate reports and dashboards to:

  1. Identify the key providers who prescribe the bulk of brand name drugs
    • A single medical oncologist who practices at an outpatient clinic affiliated with a 340B hospital could prescribe $1 million of brand drugs per year
  2. Identify the brand drugs where there is an alternate generic medicine available
  3. Compare the cost and create an outreach program to include incentives in provider contracts for prescribing generic drugs
  4. Savings of more than $5 million can be realized for a health plan with member count of 500K to 750K by reducing brand drug prescriptions by 15-20%
  5. Savings of more than $10 Million can be realized for health plans with more than 1 million memberships by reducing brand name prescriptions by 10%

Learn more about HealthEdge’s core administrative processing system HealthRules Payer.