What Restaurant Groups Need to Know about Managing Prescription Drug Expenditures

November 29, 2022

By Jay Wink and Reid Wagner

When it comes to managing medical plan costs for restaurant employers, aggressive management of prescription drug expenditures can yield significant savings. The purpose of this article is to elaborate on the strategies for effective cost management for these programs and explain why it’s important for restaurant groups to manage their prescription drug expenditure.

First, it is important to identify several emerging prescription drug trends. Express Scripts, one of the largest Pharmacy Benefit Managers (PBM), in their 2020 Drug Trend Report, noted that specialty drugs were more than 50% of the drug spend. Of even greater concern, specialty drug spending is increasing 10% to 15% annually. This compares to Brand drug pricing that has increased 36% in the last 5 years.

Much of this specialty growth has been the direct result of injectable cancer drugs. Sun Life’s 2021 Stop Loss report notes that 9 of the top 10 injectable drugs were for cancer, and cancer remains as the number one high-cost claim condition as it has for 10 years.  As a result, within the next several years, Rx costs will represent a larger portion of the overall healthcare spend than hospital costs.

Understand your costs

The first question we ask any prospective client is: Do you have a prescription drug contract? This document should specify discounts on each type of drug category – generic, brand named and specialty drugs, and their associated rebates. If the contract is for multiple years, it should show increasing year-over-year discounts. Carriers can afford to improve discounts every year as the overall prescription drug expenditure is increasing every year. Likewise, rebates should be itemized in both brand and specialty categories. If your medical plan is self-funded, rebates can be offered as a credit to your administration fee. The other approach is receiving your share of the rebates in the form of a quarterly check. While full rebates may be greater than the rebate fee credit, typically the rebate isn’t provided for 90 to 120 days after the end of the quarter.  This choice becomes a cash flow issue. Typically, we find that groups in the restaurant space don’t have a prescription drug contract, so this is a great place to look for employer savings.

Carve in or carve out

Some groups find savings in “carving out” their prescription drug benefits from their existing medical contract. If a prescription drug contract already exists, then detailed claim files should be available.  With this information, it’s possible to determine the efficiency of the contract and whether a carve-out strategy is valuable.

Keep in mind, many carriers are restricting the ability of clients to carve-out because they are simply earning too much money providing the service directly.  It’s also is not viable to carve Rx coverage out of a fully insured contract due to the lack of stop loss availability.

A carve out strategy isn’t just for big groups, there are coalitions and third-party vendors that provide these services for relatively smaller groups.  Still, there are other considerations:

  • Does your consultant/broker have the ability to integrate medical and Rx claims information into a reporting structure to summarize expenses and projected budgets?
  • How does your stop loss provider gather claims information to integrate the medical and Rx expenditures for reimbursement purposes?
  • Will your plan participants be required to carry two ID cards?

Regardless of the strategy chosen, carve in or carve out, the Rx provider should provide a true up on contractually promised savings versus actual after year-end.

Managing the member expenditure

While the above ideas provide contractual savings to the plan, additional clinical programs are necessary to control claim costs.  The most successful plan sponsors aggressively add clinical programs even if their plans are not currently experiencing utilization issues.  Some of the valuable clinical programs include:

  • New drugs to market strategies which temporarily exclude newly launched products until a formal review is completed
  • Strategies that exclude newer, more costly medications that offer no clinical advantage when lower cost drugs already exist
  • Strategies that exclude select non-FDA approved products
  • Excluding higher cost brands or generics, taking advantage of lower cost generics
  • Excluding high cost specialty drugs that should be administered in an inpatient setting. These are best managed under the medical plan.

The success of these programs is to implement them before there is an issue in your plan; don’t wait until the horse has left the barn.

While cost reductions are almost impossible in an environment of double-digit cost increases, it is vital to limit the rate of increase. However, it is not unusual to see a first-time cost reduction of 30% in the Rx expenditure when these strategies are adopted. Focusing on the Rx contract and the programs to control utilization are the keys to success for every plan sponsor.

How we can help

MMA’s Reid Wagner and Jay Wink have extensive experience in the employee health & benefits field, each with 25+ years of experience. You can contact them directly at [email protected] or [email protected] to learn more about how we can help with the implementation of effective cost management strategies for prescription drug expenditure.


*This article previously appeared in Modern Restaurant Management (MRM).