Life Sciences

Mercer, Gallagher open up about pharmacy benefits, design, and unmet needs in DM

Medicare & Reimbursement Advisor Weekly, September 14, 2009

Going beyond the contract

Editor’s note: This article features interviews with employer benefit managers (EBM), including a new conversation with Mercer’s managed pharmacy director David Doss. Additional interviews will appear separately.

Wyndham Hotels had a minus 3% drug spend last year, a sharp contrast to most employers who experienced an upward trend closer to plus 5%. Although it’s difficult to pinpoint a single reason, Wyndham pays for at least two genetic tests (one for Coumadin®, one for Tamoxifen) to see whether employees will benefit from those therapies. It also has a high generic fill rate.

“They’re innovators in that way, the exception,” says Mike Thomas, PharmD, who oversees clinical pharmacy operations for Gallagher Benefit Services (GBS), one of the leading U.S. EBMs.

David Doss, head of Mercer’s managed pharmacy practice, says a large technology company has asked the EBM to tie genomics and testing into its health benefit design, so the trend is emerging.


Mercer’s managed pharmacy practice is the largest of its five specialty groups. It features 22 staff members, including eight clinical pharmacists who do pharmacy consulting. They work primarily with midsize to large private and public employers, mostly self-funded businesses, advising on everything from benefit design to clinical health plan and PBM management, PBM selection, and collective purchasing agreements.

GBS, meanwhile, has 84 U.S. offices specializing in healthcare benefits for employers. Thomas’ team reviews employer drug spend, pharmacy plan design, specialty drug use, formularies, out-of-whack trends, and it helps employers choose the right PBM and carve out pharmacy benefits.

Thomas, who has a medical management degree from the University of California, Irvine, spent 11 years running the pharmacy department for a two-million member plan with $150 million in drug spend.

His background as a retail pharmacist, pharmaceutical consultant, and hospital pharmacist led him to run Express Scripts’ finance operations for eight years before deciding he wanted a challenge: to help employers make rational decisions about benefit design. “I thought it would be too easy to help pharmaceutical companies get their products on formulary,” Thomas says.


Mercer doesn’t currently rely on clinical monographs or pharmaceutical companies for clinical information, Doss says. Rather, it looks to an associate professor of medicine at Harvard.

“We never work with pharmaceutical account managers, but I could see a fit for them in our DM approach to evidence-based design,” Doss says. Some of Mercer’s larger public and private employer customers require patients with certain diseases, such as diabetes, to participate actively in a disease management (DM) program to get a lower copay on brands and generics. “Pharma projects would have to be approved here,” Doss says, “but we did propose to help one company build an online evidence-based design tool recently. I’d say the big need is in programs to improve health outcomes, and focused on adherence coaching, since there’s disparity in the quality of this in the market. We’d be open to ideas there, but we’d have to do so so it wouldn’t compromise our objectivity with employers.”

GBS’ Thomas used to contract with pharma in the late 1990s, but not anymore. “I know how they contract, but I also believe there’s a conflict when we’re dealing with PBMs and employers now, so we stopped doing the contracting with manufacturers,” he says. Typical pharmaceutical support that generally works includes:

Educational programming for employers

Health fairs at employer sites (although Thomas says these are infrequent and difficult to coordinate)

Employer conferences

Thomas thinks disease state programs have an important place in the medical management of conditions affecting employees, as long as they are provided in the context of education. “There are certainly opportunities around diabetes especially and the specialty area for pharmaceutical companies to provide support,” he says.


Two of Mercer’s largest employer customers implemented value-based design earlier this year. To access low copays on brands and generics, the employee must participate actively in the DM program. “The initial results are positive, but we’re in the transition year, so we’ve seen significant uptick in the percent of people enrolled in DM,” Doss reports. They don’t expect to break even in 2009, but the initial cost-avoidance numbers are good. “More people are taking their meds, which is a good thing if appropriate, so pharmacy spend is up, but we’re seeing lower numbers of ER visits and other resources dropping. We don’t necessarily want to see MD visits go down, though,” Doss says.

On the horizon, Doss sees EBMs playing a greater role in employer productivity studies. “This hasn’t happened yet, but the biggest part of cost avoidance in evidence-based design is presenteeism in the workplace,” says Doss.

The recent wave of interest in value-based insurance design is surprising to Thomas since the concept started around 1999. “I do see the ROI for employers who support a more open design with zero-dollar copays. Pitney Bowes did this 10 years ago, looking at the diabetic population and adherence, and had all brands and generics at a low copay, equally available, and found a 4:1 return on investment from this approach, compared to the standard, more commercial-oriented design,” he says. This suggests an appetite for appropriate access on tier 1 and 2 to brands that have a value story.

There’s also a slower movement toward the consumer-driven designs. Just 6% of plans do this. “Louisiana State University does this, and it’s actually working very well,” Thomas says, “but I’m not sure it has broad applicability until the model is simplified. It’s very confusing for lay people to navigate.”

But the conversation between EBMs and employers is less about generic fill rates and design. Employers aren’t really openly asking for value-based design. “Instead, they just want us to tell them what’s right or wrong,” Thomas says. This is interesting because it suggests that employers are leaning on EBMs to help them develop the right design for their population, but, in some cases, the most ethical design, as is the case with Wyndham Hotels and its decision to cover certain genetic tests and be open to controlling spend in out-of-the-box ways.

Controlling specialty spend is the most challenging area. “There’s been some increase in cost share put on the employee, but not to the level I think it would have increased, and one reason is that compliance/adherence would suffer once you reach $150 for copay,” Thomas says.


“On formularies, we’ll look at them and often tell employers what they’re missing, tell them if there’s too much on the formulary, help them move specialty drugs appropriately to the pharmacy benefit, and definitely focus on these four therapeutic areas: specialty drugs, cardiovascular, diabetes, and asthma,” Thomas says.


GBS conducts comparisons between PBMs to help an employer understand whether switching to a new PBM will cause disruption and where (such as a rise in copays for a particular drug used by many employees). It’s interesting that the level of discussion with some employers often revolves around the PBM process. Two PBMs will bid for an employer contract, one will offer a discount of AWP minus 18%, the other AWP minus 16% (or some other discount off the selling price), and many employers simply want to go with the better discount without understanding that the PBM may have a more expensive formulary or benefit design.


Seventy-five percent of employers want the lowest cost design and formularies, and 25% want low drug costs but an effective design, one that will really help improve productivity and outcomes. “I spend an inordinate amount of time with employers trying to push the latter and get them to understand that the cost of their drug spend is not indicative of the value of their drug spend,” Thomas says, adding that “you have to consider downstream costs, but on the flip side, I also tell employers about the incredible waste they have in some drug spend.”

Thomas has noticed a real upswing in interest among employers in the pharmacy benefit and a lot of employers with formularies that are promoting drugs people don’t need. “Everyone in the known universe doesn’t need Nexium®, for example, or many of the cholesterol medications. I know there are people genetically disposed to high cholesterol and other conditions, but there are other answers outside of pharmacy we advise employers to look to,” he says.


EBMs can go to the P&T Community and the sites for formulary evaluations. “We follow clinical news from all of the major PBMs since we are linked into their clinical research e-mails,” Thomas says. “We also do our own research if needed.”

Most Popular