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4 ways to control drug costs: by following new business strategies, no-fault auto insurers can manage rising medication prices.

Medication expenses already account for approximately $3.26 billion of the total medical costs associated with auto accidents each year, according to a recent study by the National Highway Traffic and Safety Administration. Thanks to factors such as price inflation and brand medication usage, these costs are on the rise. For auto no-fault insurers this means steps must be taken to contain costs without compromising care for their insureds.

Increasing Medication Costs

According to a May 2007 study by the Kaiser Family Foundation, medication costs are projected to increase by 148% in 10 years. This is attributed to a rise in prescriptions, changes in the mix of medications being used (from older medications to newer, more expensive ones), and manufacturers' price inflation for existing medications.

The 2007 Kaiser Family study also states that brand medications can cost up to three times more than their generic counterparts. All too often, however, brand medications are used in place of generics due to lack of education on the availability of new generics and a general misconception that brand medications are more effective than their generic counterparts.

Inappropriate utilization also plays a role, costing auto no-fault insurers an additional 10% to 15% in expenses, thanks to overspending. When prescriptions that are unrelated to an insured's injuries are filled, overspending occurs.

For example, an insured who refills high blood pressure medication, birth control pills, diabetes supplies or anti-depressants passes those costs on to the insurer. These unrelated or non-compensable medications cost the insurer hundreds of dollars each month and may result in court-ordered coverage of unrelated drugs.

Four Key Strategies

(1) Work with a national network of pharmacies

Establishing a nationwide network of major retail pharmacies is a key component of a successful cost-savings plan. Not only does using a national network provide greater convenience to insureds, it gives auto no-fault insurers access to discounts. Available discounts can vary since they are based on volume, program use and state regulations.

One way to establish a pharmacy network is to work with a pharmacy benefits manager.

(2) Offer mail order programs to insureds

Mail order programs effectively provide extended care to insureds who require ongoing prescription medications. These programs work particularly well for insureds who cannot leave home or must take multiple long-term medications.

For auto no-fault insurers, mail order programs decrease administrative burdens for the claims professional since it is typical for insureds to receive a 90-day supply of medication. In addition, mail order programs also mean costs savings. Both generic and brand medications typically cost less through a mail order program, especially if the auto no-fault insurer works with an established home pharmacy.

(3) Establish an effective utilization review process

Even if a discount was used for a prescription, savings are irrelevant if the medication should not have been dispensed. By putting a drug utilization review program into place, auto no-fault insurers could receive significant incremental savings--usually between 10% and 15% above the prescription cost savings.

There are several types of drug utilization reviews:

* A prospective drug utilization review process allows all involved parties to plan for future outcomes with up-front information. If problems arise, claims professionals may withhold approval of a claim.

* Concurrent drug utilization reviews typically occur in real-time at the pharmacy. When an fills a prescription, it is audited appropriateness physicians, excessive dosage, drug interactions and other items this nature.


* A retrospective drug utilization review process takes place after medications are filled. Using historical data, insurers can look for appropriate medication use for compensable conditions, potential drug-to-drug or drug-to-disease interactions, duplications in therapy and high-utilizing insureds.

Formulary management involves taking steps to ensure that the medication filled is specific to the injury. For auto no-fault insurers, it is critical to address the nature of an injury when determining which medication is appropriate for treatment.

(4) Partner with a pharmacy benefits manager

In response to the mounting challenge of managing pharmacy costs for auto no-fault insurers, a new service has emerged and proven itself an effective cost containment resource--the pharmacy benefits manager. A strong PBM relationship can lead to an average savings of up to 25% on an auto no-fault insurer's overall spending.


PBMs offer programs and services give auto no-fault insurers more insight into their company's total medication costs while streamlining pharmacy benefits processes. Benefits typically include access to network discounts, a national network of pharmacies, and other comprehensive programs such as mail order and drug utilization review.

Auto no-fault insurers should carefully research potential PBMs, as some are better equipped than others to handle the nuances that come with auto no-fault claims. A PBM's experience working with auto no-fault claims and attention to providing quality service--particularly to insureds--also should be explored.

There are a variety of factors to look for when considering a potential PBM partner, including network participation and discounts, mail order programs, generic substitution, drug utilization review, ease of use, work flow, cost savings, administrative benefits and insured satisfaction.

For an insurer to receive a discount on prescription medication, a PBM partner must have a vast national network of retail pharmacies that honor the discount and provide the best accessibility to the insured. The most effective PBMs also have programs that encompass each phase of prescription fulfillment, which include capturing initial prescriptions, ongoing prescription needs and long-term or catastrophic prescription requirements. In addition to these programs, a PBM should offer comprehensive training to ensure the program is used effectively.

While a PBM program is not entirely effortless on the part of the insurer and claims professional, it should be easy to use. An effective PBM program should not only reduce overall medication costs, but reduce the claims professional's administrative time. In addition, a wide range of reports and reporting options should be available to continually assess the program's value.

Administrative Benefits

While many auto no-fault insurance companies partner with a PBM to minimize the impact of rising drug costs, they also realize administrative and insured satisfaction benefits.

Some examples of the administrative benefits a PBM provides to the claims professional include: less paperwork for medication invoices and reimbursement issues; easily accessible prescription history for the insured; reduction in the amount of incoming and outgoing phone calls; and increased ability to detect utilization issues and potential problems.

By working with a PBM that offers a technology-based claims management tool, auto no-fault insurers can streamline their processes and enhance productivity. Strong claims management tools should be role-based and feature a user-friendly interface. They should also make it easy for claims professionals to perform administrative tasks and provide access to valuable reference tools such as clinical information, pharmacy locations, policies and medication plans.

Satisfying insureds should be the highest priority of auto no-fault insurers. A PBM can assist with this goal by reducing out-of-pocket expenses for the insured, making it easier for the insured to get the medications they need through a vast national network and offering a mail order program.

* The Trend: Prescription drug costs are expected to rise by 148% in 10 years.

* The Significance: The costs and inappropriate use of medications are driving up no-fault auto writers' expenses.

* Watch For: No-fault auto insurers to turn to mail-order drug programs and drug utilization reviews to help mitigate costs.

Pharmacy Benefits Manager's Work Flow



Insured reports the loss.



The claim is entered into the insurance provider's system.



The claims professional sends eligibility information to the PBM.



PBM mails a drug card to the insured.



The insured takes the drug card and prescription to the pharmacy.



The pharmacy adjudicates prescription and checks Drug Utilization Review (DUR) edits. The PBM is contacted to determine if prior authorization is required.



If the prescription passes all DUR edits, the pharmacy bills the PBM, PBM pays the pharmacy and bills the insurance provider, which pays the PBM.



PBM provides ongoing reporting to the insurance provider.

Contributor Lisa Scaggs-Oskoui is chief sales and marketing officer for PMI, based in Westerville, Ohio. She can be reached at
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Title Annotation:Property/Casualty: Auto Package
Comment:4 ways to control drug costs: by following new business strategies, no-fault auto insurers can manage rising medication prices.(Property/Casualty: Auto Package)
Author:Scaggs-Oskoui, Lisa
Publication:Best's Review
Geographic Code:1USA
Date:Oct 1, 2008
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