Evaluating the advantages or disadvantages of bundling medical and pharmacy benefits under one carrier/PBM can be a complex undertaking. The ‘bundle and save’ concept (or carve-in) is certainly popular and on the surface may appear to be convenient - one package at one price.
While the perception is that carve-in may ease the administrative burden for the plan sponsor, the trade-offs are loss of clarity regarding contract and pricing terms and awareness into the true cost of drugs. For example, the “carve-in” model often involves a subcontracted provision with the Pharmacy Benefit Manager (PBM) by the health plan or medical insurance carrier, where an administrative fee is charged to handle the terms and conditions of the contract.
Carving out the pieces, however, can reveal some compelling reasons to avoid the bundle, starting with a direct contract with the PBM. Pharmacy costs today account for a major portion of total healthcare spending (approximately 25% of total claims). A “carve-out” PBM can offer unique insights, strategy and expertise to help the plan sponsor focus on structuring a well-designed plan to control cost spend. Examples include lower drug costs (through negotiations, drug pricing, rebates, etc.); clinical management to mitigate fraud, waste and abuse; customized plan designs: specialty programs structured to provide a high level of clinical support; improved data and, most importantly, transparency in contracts, pharmacy claims data, audit rights, and more.
Carving out pharmacy benefits makes great sense for plan sponsors. As medication costs continue to swell (and they will) the PBM is a vital link between member, prescriber and Plan, providing the much-needed skills and expertise to drive better clinical outcomes while controlling costs.
Kidney dialysis, formally known as End-Stage Renal Disease (“ESRD”), is the only medical diagnosis that entitles a patient to primary Medicare coverage, regardless of age, after a 33-month period. Currently, two dialysis providers dominate the market: DaVita (owned by United HealthCare) and Fresenius with a patient load of more than 65%. This market dominance sets up an extremely costly situation for a self-funded employer since typical monthly dialysis provider charges are close to 1,810% of what Medicare would allow for the same services. In fact, it’s not unusual for monthly charges to exceed $65,000 with providers seeking to build as much profit as possible into that short, 33-month window and the self-funded employer picking up the burden as the primary carrier until Medicare coverage kicks in.
“Carving-out” the dialysis program can level the playing field by transferring the pricing leverage from the provider to the Plan. This carve-out process involves partnering with a dialysis vendor for a minimal fee. Implementing the dialysis carve-out involves modifying the Plan Document to establish a defined fee schedule for dialysis services, and establishing a new, low-cost Plan benefit that optimizes the member’s available coverage. Together, these modifications can enable Plans to reduce their costs by up to 80% after only three months of dialysis services, an average savings of $485,000 per case annually.
