Two Silver Bullets To Lower Health Plan Costs

Everyone knows that health plan costs are the direct result of medical and pharmacy claim costs. And with claim costs increasing again this year, chances are you’re going to see a moderate to high increase in your health plan cost.

The two largest areas of claim costs are 1) facility claims (hospitals, dialysis, imaging, etc.) and 2) pharmacy claims – specifically specialty drugs.

With regards to Facilities:

  • Facility claims, while few in number compared to physician claims, can account for 60% or more of total health plan costs.
  • Facilities are raising their prices at alarming rates, because they can – there are no laws, rules or regulations about what those prices can be.

With regards to Specialty Drugs:

  • prescriptions make up approximately 25% of your total healthcare spend
  • specialty medications represent approximately 50% of the prescription spend
  • over the past two years 60% of the drugs approved by the FDA or specialty drugs
  • only 2 to 4% of the employee population uses specialty medications

So what we have is very few claims accounting for the vast majority of claim costs. Over the years I’ve found that there are two silver bullets to lowering health claim costs with facilities and specialty drugs. They are Reference Based Pricing and Specialty Drug carve-outs.

Reference Based Pricing (RBP) has been around for almost 15 years. Most employers are not aware of it because their broker or consultant is not aware of it, or has not brought it to the attention of their client. This methodology simply uses Medicare-Plus and/or Cost-Plus to reimburse the facilities rather than an obsolete PPO discount. RBP can lower facility claims by as much as 40%, 50% or more depending upon the type of RBP company you use.

All RBP companies are not the same and employers must be very careful when selecting a RBP company. This can be a case of “over promised and under delivered” if the wrong RBP company is selected. I witnessed it firsthand with employers who simply took the advice of their broker or consultant without asking the right questions. The most important topic to do a deep dive in is: member support. All RBP companies can reprice claims, but they all can’t provide the level of member support that members or employers are told or expect, or achieve the financial results they expect as well. Some are simply better than others.

Specialty Drug carve-outs can also be tricky if you’re not careful about selecting the right program. There are companies that can lower the costs of these drugs and there are those that can eliminate the cost. Some companies charge a percentage of savings, while others will charge a per participant per month fee.

A few things to note when examining these programs:

  • does your current Pharmacy Benefit Manager (PBM) allow you to carve out Specialty Drugs? (the big ones do not)
  • do you have to exclude all Specialty Drugs from your PBM will or is it simply voluntary?
  • if a covered member is treated at a hospital, is the Specialty Drug covered under the medical plan?
  • how does the member enroll in the program and how long does it take?

These two programs alone have allowed my clients to reduce their health claim costs and thus their health plan costs by 30% to 50% or more, and have not had to reduce their benefits or increase employee contributions. In fact, some clients have added new programs, reduced deductibles, and lowered employee contributions. In a tight labor market, what could be better than reducing health plan costs in order to increase wages and provide superior benefits?

If you’d like to learn more about these strategies and programs you can email me at or call me at 970-349-7707.

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Frank Stichter