Saving A Client Millions on Pharmacy Spend

This video presents a compelling real-world case study demonstrating how an employer significantly reduced pharmacy spend by transitioning from a fully-insured model to a self-funded approach. The core narrative revolves around an employer with approximately 300 enrolled employees facing a daunting 35% renewal increase, primarily driven by the high cost of a single employee's medication, Hemlibra, for hemophilia. Initially reported at $1.15 million, the cost was projected to double to $2.3 million annually due to an increased dosage, making this individual account for nearly 50% of the plan's total spend.

The speakers, Spencer Smith and Kristen Rivers of Paro Health, highlight the critical issues inherent in fully-insured plans, particularly the lack of transparency and data access, which prevents employers from understanding and managing their pharmacy costs effectively. They explain that such a high-cost, ongoing claimant would lead to a "stair stepper effect" of continuous, steep renewal increases for the employer. The video underscores that despite paying pooling charges in a fully-insured setting, employers often remain unprotected from the full financial impact of large claims.

The solution presented involved the employer moving to a self-funded model and joining a captive, which provided the necessary transparency and control. Through a partnership with SmithRx, the exact same Hemlibra drug was sourced for a substantially lower price of $850,000, immediately yielding $1.45 million in annual savings. Furthermore, the strategy incorporated a "contingent laser" on the stop-loss policy, anticipating the potential for patient assistance programs. If the member qualified for these programs, the cost to both the plan and the member could drop to zero, transforming a $2.3 million annual expense into a non-cost item. This case study powerfully illustrates the financial benefits of proactive pharmacy benefit management and the strategic use of data.

Key Takeaways:

• Significant Impact of Specialty Drugs: High-cost specialty medications, such as Hemlibra for hemophilia, can disproportionately drive up employer health plan costs, potentially accounting for a substantial portion of total plan spend.
• Exponential Cost Increases: Dosage adjustments for ongoing chronic conditions can lead to dramatic, multi-million dollar increases in annual drug spend, creating unsustainable financial burdens for employers.
• Limitations of Fully-Insured Plans: Fully-insured models often lack the transparency and data access necessary for employers to effectively understand, manage, and mitigate high pharmacy costs, leading to reactive and steep renewal increases.
• The "Stair Stepper Effect": Employers with large, ongoing claimants in fully-insured plans are susceptible to continuous, significant year-over-year premium increases, far exceeding typical trend rates.
• Benefits of Self-Funding and Captives: Transitioning to a self-funded model, especially within a captive arrangement, empowers employers with greater control, transparency, and the ability to implement cost-saving strategies for pharmacy benefits.
• Strategic Drug Sourcing: Partnering with specialized pharmacy benefit managers (PBMs) or sourcing partners (like SmithRx) can lead to massive cost reductions for high-cost drugs, even for the exact same medication.
• Leveraging Patient Assistance Programs (PAPs): PAPs are a critical tool for reducing or eliminating out-of-pocket costs for members and claims costs for the plan, potentially turning multi-million dollar expenses into zero-cost items.
• The "Contingent Laser" Strategy: A contingent laser on stop-loss insurance allows self-funded plans to manage the initial liability of a high-cost claimant while actively pursuing patient assistance program qualification, setting the plan up for potential future cost elimination.
• Data and Transparency are Paramount: The principle "you can't manage what you can't measure" is central; access to detailed pharmacy spend data is essential for identifying cost drivers and implementing effective management strategies.
• Proactive Management Yields Millions in Savings: Strategic shifts in plan design and pharmacy benefit management can result in immediate and ongoing savings of millions of dollars annually, significantly impacting an employer's bottom line.
• Overcoming Perceived Risk: Even in scenarios with significant ongoing high-cost risk, moving to a self-funded model with strategic partners and data-driven insights can be a winning strategy, contrary to conventional wisdom.
• Long-term Financial Impact: Proactive management of pharmacy spend not only yields immediate savings but also stabilizes future renewal increases, moving from potential 35-80% increases to more manageable 1-2% trends.

Tools/Resources Mentioned:

• SmithRx: A pharmacy benefit manager (PBM) or sourcing partner capable of sourcing drugs at significantly lower costs.
• Patient Assistance Programs (PAPs): Programs offered by pharmaceutical manufacturers or non-profits that help patients afford their medications, potentially reducing costs to zero for eligible individuals and their health plans.
• Self-funded / Captive Models: Alternative health plan funding mechanisms that provide employers with greater control, transparency, and the ability to manage their own healthcare costs, including pharmacy spend.

Key Concepts:

• Fully-Insured: A health plan funding model where an employer pays a fixed premium to an insurance carrier, and the carrier assumes the financial risk for claims.
• Self-Funded: A health plan funding model where an employer directly pays for employee healthcare claims, often utilizing a third-party administrator (TPA) for claims processing and purchasing stop-loss insurance to protect against catastrophic claims.
• Captive: A type of self-funded arrangement where multiple employers pool their resources to share risk, often providing more control and potential savings than traditional self-funding.
• Hemlibra: A specific high-cost drug mentioned, used for treating hemophilia.
• Contingent Laser: A specific provision in a stop-loss insurance policy that covers a high-cost claimant but is contingent upon the employer actively pursuing other cost-mitigation strategies, such as patient assistance programs.
• Transparency and Data: The ability to access and analyze detailed information about healthcare and pharmacy spend, crucial for informed decision-making and cost management.

Examples/Case Studies:

• The video details a specific case study of an employer with nearly 300 enrolled employees. This employer was facing a 35% renewal increase due to one employee's Hemlibra cost, which was projected to be $2.3 million annually. By switching to a self-funded model and partnering with SmithRx, the cost for Hemlibra was reduced to $850,000, resulting in an immediate annual savings of $1.45 million. Further potential savings to zero were identified through patient assistance programs.