Direct Rx Reimbursement

Friday, July 2, 2010

Prescribed drug costs are becoming an increasingly larger proportion of the over costs of individual, private (employer sponsored), and public healthcare plans. As with healthcare in general, the driving force behind the increase in prescribed drug costs is aligned with three factors: (1) Increased usage, (2) Direct consumer marketing by pharmaceutical manufacturers, and (3) Greater patent protection.

According to a report published by The Kaiser Family Foundation on National Health Expenditures data from The Centers for Medicare and Medicaid Services, US drug costs rose a total of 142 percentage points from 1996 to 2008. Thus, a drug that costs $100.00 in 1996 was $381.03 (compounded) in 2006.

As with healthcare in general, organizations look for ways to make their Rx dollar go as far as possible while providing value for their active employees and retirees. Some techniques include the use of preferred pharmacy networks with carrots and sticks to use in-network pharmacies and not use out-of-network pharmacies. Another approach is to maintain a list of preferred (formulary) and non-preferred (non-formulary) drugs for which the organization’s Rx plan will or will not pay. A third technique is for the organization to engage a Pharmacy Benefit Manager (PBM), these vendors negotiate with drug manufacturers and pharmacy chains to deliver discounted drugs to the organization’s insured members. Of course, an organization could choose to reimburse its employees directly for prescribed drug costs through a process known, obliviously, as Direct Reimbursement.

Prescribed drug Direct Reimbursement (also used for dental expenses) at its simplest level works life any other reimbursement payment process, e.g., employee travel. The employee goes to the doctor, gets a script, takes the script to the Rx, pays for the script, presents the payment receipt to the employer, and the employer writes a check to the employee. There are no claim forms, no insurance company, no networks, no formularies, and of course, no controls other than the employee has to have a valid prescription from a licensed medical doctor. Variations in this process includes adding deductibles, co-pays, con-insurance, networks, formularies, incentives for generic drug use, mail order for maintenance drugs, .. etc. Funding of the benefit may look just like any other self or fully insured arrangement, employees and employers may both contribute. Programs may incorporate pre-tax features of Flexible Spending Accounts (FSA). However, at some point Direct Reimbursement becomes so complicated that organizations need a Third Party Administer (TPA) to run the program and any cost savings may be eliminated by administrative service fees. So why should an organization consider a Prescribed Drug Direct Reimbursement program?

Some organizations, most notably school systems, city, county, state governments, and unions (pharmacists support them) have been using Prescribed Drug Direct Reimbursement for some time. Organizations with a workforce concentrated in a very well defined geographical area, i.e., school systems, city, county, state governments, and unions are able limit their exposure to unpredictable costs due to the restricted pharmacies available to their members. They may even be able to obtain special pricing with local pharmacies though contracting, i.e., networking. Clearly, organizations with dispersed workforces in multiple states would not be likely candidates for Direct Reimbursement. Such organizations would also find it difficult or impossible to build such arrangements without the support of employee benefit brokers since compensating those brokers could prove to be problematic, at best.