Study Finds Potential for Significant Cost Savings Through Preferred Pharmacy Benefit Network Strategy

Comprehensive analysis conducted by Milliman shows value for employers adopting innovative approach to pharmacy benefit plans

MILWAUKEE--(BUSINESS WIRE)-- Published findings from a new report released today by the independent pharmacy benefit manager, Restat, found that employers could experience significant annual cost savings by adopting a “preferred” pharmacy benefit strategy. The report, “The Value of Alternative Pharmacy Networks and Pass-Through Pricing,” was researched and written by the internationally recognized consulting firm of Milliman, Inc. and outlines for the first time actuarial estimates of prescription drugs’ retail cost components. The report can be found on align.restat.com.

“These findings show that significant savings could be available to employers willing to adopt a strategy that cuts the fat from the traditional pharmacy benefit model,” said David Kwasny, Restat president. “This new approach also helps eliminate the confusion and misunderstanding some employers may have over a pharmacy benefit system that has become much more complicated in recent years.”

Milliman’s comprehensive analysis broke apart the traditional pharmacy benefit model studying the key cost and distribution components among drug manufacturers, wholesalers, drug stores and pharmacy benefit managers (PBMs). The study, commissioned by Restat, sought to determine if there were potential cost-saving benefits to employers adopting a preferred pharmacy model that reduces drug costs and eliminates price spreads.

According to Kwasny, Milliman’s findings demonstrate the science behind Restat’s Align model – a strategic approach to pharmacy benefit design that tears a page out of the Preferred Provider Organization (PPO) model where network hospitals or physicians accept a reduced fee to be included as a favored healthcare provider. Pharmacies in a preferred network offer lower drug prices and reduced dispensing fees to attract customers from competing drug stores and increase foot traffic from members enrolled in the employer’s pharmacy benefit plan.

Milliman’s findings show that, depending on the benefit design, an employer’s overall costs could be reduced by up to 13 percent by utilizing a limited, preferred pharmacy benefit design and pass-through pricing model rather than a traditional model that includes most retail pharmacies. For example, the study showed that by adopting a closed network, where coverage is only through network pharmacies, an employer with approximately 10,000 members could save up to $845,000 annually. Additional savings could also be earned with plan changes that encourage member use of generic drugs over branded drugs.

While the Milliman report did not specifically study Restat or Align, Kwasny said, “Milliman’s findings reinforce our own client experience.”

“By creating plans that use preferred pharmacy networks and favor generic drugs, Restat has found that a company with 5,000-6,500 employees can save up to $2 million annually," Kwasny added.

In addition to lower drug pricing, Kwasny said reduced program costs are achieved with transparent PBM pricing. The PBM charges an explicit administrative fee for drug administration services. It collects no revenue from rebates or “spread” – the difference between the price the pharmacy collects from the PBM and the price the PBM charges employers, which is a common feature of traditional PBM contracts.

The study was authored by a team of actuaries led by Bruce Pyenson, FSA, MAAA, from Milliman’s New York office. The report analyzed each component of pharmaceutical drug spending – starting from the manufacturer all the way to the employer and use by consumers. Milliman’s findings help explain why some pharmacies and PBMs could offer lower prices on prescription drugs and how an employer could obtain significantly lower costs by using preferred pharmacies with pricing that goes directly to the network member.

According to Kwasny, the preferred pharmacy benefit network model is “clearly a better approach to managing prescription benefits, and one that offers greater transparency in services offered by PBMs by delivering savings directly from the pharmacy to the employer.”

“Our goal is to simplify the purchase and use of healthcare by providing unbiased benefits advice free of any conflict of interest,” Kwasny said.

ABOUT RESTAT: A member of the Dohmen family of companies, Restat simplifies the purchase and use of healthcare services through independent health benefits management. As the largest independent PBM, Restat has no ownership ties to drug manufacturers or distribution channels, making it uniquely positioned to provide customers with unbiased benefit management solutions. Today, more than 4,200 companies, ranging in size from the Fortune 50 to small managed care organizations rely on Restat to manage the prescription benefit for more than 12.2 million people nationwide. To learn more, visit www.restat.com or call 800.926.5858.

ABOUT MILLIMAN: Milliman is among the world’s largest independent actuarial and consulting firms. Founded in 1947 as Milliman & Robertson, the company currently has 54 offices in key locations worldwide. Milliman employs over 2,400 people. The firm has consulting practices in healthcare, employee benefits, property & casualty insurance, life insurance and financial services. Milliman serves the full spectrum of business, financial, government, union, education and nonprofit originations. For further information, visit www.milliman.com.

for RestatJohn Gardner, (414) 861-9458
[email protected]

Source: Restat