How to Benchmark Your Pharmacy Spend Against Industry Peers
Recognizing the Numbers: A Common HR Dilemma
Imagine sitting in a quarterly review meeting when your CFO asks, "How does our pharmacy spend stack up against others in our industry?" This question is more common than you'd think, and it's important for HR directors and benefits managers to have a clear answer. Understanding key benchmarks like PMPM (Per Member Per Month) costs, GDR (Generic Dispensing Rate), specialty drug share, and mail-order rates can offer you a competitive edge in managing your pharmacy benefits.
Establishing Your PMPM Benchmark
One of the first steps in assessing your pharmacy spend is calculating your PMPM cost. Industry benchmarks typically range from $100 to $140. Start by gathering your total pharmacy spend for a specific period, usually a year. Divide this amount by the number of members in your plan, then again by 12 months.
For example, if a 500-employee manufacturer's annual pharmacy spend is $1.4 million, and they cover 1,200 lives, their PMPM is approximately $116.67. This figure gives you a baseline to compare against industry rates. If your number is above the benchmark, it may be time to delve deeper into spend categories like specialty drugs or generic utilization.
Practical Steps to Analyze Your PMPM
- Collect your total annual pharmacy spend.
- Divide by the total members enrolled in the plan.
- Divide by 12 months to get the monthly figure.
Maximizing Your Generic Dispensing Rate (GDR)
The GDR is essential for cost control, with industry benchmarks between 88% and 92%. A high GDR indicates efficient use of cost-effective generics over brand-name drugs. To improve this rate, work with your PBM to identify opportunities. They might suggest formulary adjustments or step therapy protocols.
If your GDR is 91.3%, but your PMPM costs are high, the issue might lie within the specialty drug category. Collaborate with your pharmacy benefits consultant to dig into specific drug usage and identify potential savings.
Action Plan for Increasing GDR
- Review your current formulary with your PBM.
- Implement step therapy or prior authorization for certain brands.
- Educate employees on the cost benefits of generic drugs.
Evaluating Specialty Drug Share
Specialty drugs can devour 50% to 55% of your total pharmacy spend even though they account for a small slice of the scripts. Work with your PBM to audit this segment and explore biosimilar alternatives. For instance, moving 40 Humira patients to an adalimumab biosimilar could save roughly $680,000 annually for a 2,000-life plan.
Utilize resources like RxPBM.ai for detailed intelligence on PBMs and specialty drug management strategies. This can guide you in renegotiating contracts or adopting new management programs tailored to your needs.
Assessing Mail-Order Penetration
Mail-order services can drive savings through bulk dispensing and reduced pharmacy overhead. Industry standards suggest a mail-order penetration rate of 15% to 25%. Determine your current rate by dividing the number of prescriptions filled by mail by total prescriptions.
Encourage mail-order use through incentives or by aligning copays to favor 90-day mail orders. Resources like RxSaver.ai can also help identify savings opportunities for common prescriptions when filled via mail order.
Steps to Boost Mail-Order Utilization
- Calculate current mail-order penetration.
- Align copay structures to incentivize mail-order use.
- Communicate the convenience and savings benefits to employees.
The most actionable step you can take this quarter is to perform a comprehensive audit of your pharmacy spend using the benchmarks discussed. If you find your metrics lagging, initiate targeted interventions in one area, like raising your GDR or exploring specialty drug alternatives, to effect meaningful change in your pharmacy program.