Retirement & Financial Planning Report

An inspector general report has recommended that OPM reexamine prescription drug costs in the Federal Employees Health Benefits program, saying that the agency “may not be obtaining the most cost effective pharmacy benefit arrangements”—in other words, that the program, and ultimately both the government and enrollees, may be paying too much.

In a “management alert” dated March 31 but just recently released, the IG’s office at OPM noted that prescription drugs account for 27 percent of the total cost in the program, compared with 17 percent on average for other health insurance programs.

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In addition, “Most FEHB carriers report an increase in drug costs per member each year. Greater utilization of existing drugs and the expanding costs of specialty drugs contribute significantly to FEHBP premiums. Prescription drug utilization and costs are expected to increase for the foreseeable future, as new pharmaceutical advancements are developed and the rapid growth of the specialty drug market continues,” it said.

Specialty drugs—classified as high-cost, high complexity and/or requiring increased human intervention—account for less than 1 percent of prescriptions but 37 percent of prescription drug costs. “This is an alarming statistic knowing that specialty drug trends are not expected to slow down anytime soon,” it said.

“The need for impartial and extensive analysis of the FEHB drug program and potential cost-saving options is long overdue,” it said, since it has now been seven years since the last one.

Of particular interest, it said, is the “pharmacy benefit manager” system in which carriers contract with companies to process and pay prescription drug claims. While other federal health insurance systems including the military Tricare system, the VA’s Veterans Health Administration and Medicare either negotiate drug prices directly or through just one PBM under a central contract, it said, the FEHB “does not regulate or negotiate drug pricing for its members”—relying instead on competition among carriers to control prices.

“The PBM and prescription drug landscape has significantly changed since 2012 and as such, warrants the need to evaluate the benefits, delivery, and pricing of FEHB prescription drugs; specifically, whether carriers’ PBM contracts provide the best value to the federal government and FEHB enrollees in today’s pharmacy benefits environment,” the IG said.

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