Wrapping Your Arms Around the Medical Benefit Drug Spend

Prescription drugs are covered through a health plan’s pharmacy or medical benefit. This determination depends on whether the drug is self-administered or given in a clinical setting. While the reimbursement process through the pharmacy benefit is straightforward and well managed by pharmacy benefit managers (PBMs), reimbursement through the medical benefit is much more indefinite.

Due to variability in medical claims submission processes and other reimbursement practices, it is difficult for sponsors to accurately evaluate medication costs and patient utilization in the medical benefit.

Finding solutions that apply to utilization management, site of care management, claims pre-payment review, and driving medical rebates to effectively reduce wasteful spend while providing services tailored to patients ensuring safety and healthier outcomes presents a formidable challenge to Medicare Advantage plan sponsors.

A major restraint for transparent medical benefit drug utilization and analyzing spend data is the use of less descriptive Healthcare Common Procedure Coding System (HCPCS) through a traditional CMS-1500 claims billing format. Other complexities for effectively managing medical benefit drug spend include cost differences by site of service, provider reliance on dispensing drug revenues, and variable fee schedules.

It is not surprising that for medical benefit drug spend, plan sponsors are hampered with the inability to adequately recognize whether covered members are receiving the most clinically appropriate and cost-effective drug therapies.

Network Management 

For medical benefit specialty drugs, the four major sites of care or service channels are physician offices, outpatient hospital clinics, home infusion setting, and specialty or retail pharmacy. Reimbursement methods vary with average sales price (ASP)-based reimbursement most commonly used for physician offices, while the percentage of billed charges and average wholesale price (AWP) are most commonly used with outpatient hospital clinics, home, and PBM/specialty/retail sites of service.

While some payers and PBMs advocate the use of “white-bagging” or “buy and bill” in which providers are required to acquire specialty drugs directly through the specialty pharmacy, this tactic undoubtedly creates friction among large numbers of providers, particularly oncologists, hematologists, and rheumatologists. The main source of friction is the revenue gleaned from drug dispensing and/or drug administration and whether any of the revenue can be transferred into payer or plan sponsor savings.

Benefit Design 

For medical benefit drugs, benefit design includes patient out-of-pocket costs and whether these drugs are covered exclusively under the medical benefit or under both the medical and pharmacy benefit. Ideally, payers and plan sponsors should be able to provide or receive integrated clinical and financial data for medical benefit drugs, regardless of benefit design.

One way to strategically achieve this is to have a single source managing all prior authorizations, regardless of benefit design, triaging to the most cost-effective site of service, matching claims to authorizations, and finally, offering near real-time, transparent, integrated clinical and financial data.

There are disadvantages or limitations, however, in that it remains difficult for vendors to efficiently share data in a timely manner, making it important to establish clear boundaries and responsibilities among vendor partners. This lack of data can cause difficulty in determining the financial alignment of the benefit plan while achieving the desired clinical outcomes.

Since the passage of the Affordable Care Act, hospitals have rapidly acquired community-based specialist practices (e.g., oncology, hematology, and rheumatology) and rebranded them as outpatient facilities. To the dismay of payers and plan sponsors, the cost for drug administration in a hospital outpatient setting can greatly exceed the same service provided in a community-based setting.

The most common site of care management approaches include member outreach to encourage the use of lower cost care sites and preferred sites that offer lower member out-of-pocket costs, creating narrowing provider networks, and limiting sites of care for selected drugs.

The Value of Effective Medical Benefit Drug Management 

The collaboration of payer and plan sponsor insight into the value of an effective medical benefit drug management program highlights examples of best practices:

  • Efficiency in benefit design, provider capabilities, and to monitor and identify providers who significantly deviate from transparently developed “best practice” metrics.
  • Utilize a clinically-based partner with evidence-based experiences.
  • Alignment of appropriate, transparent, nationally recognized evidence-based guidelines, dose checks, and competent peer-to-peer dialogue.
  • The combination of good, measurable outcomes and integration with the most up-to-date peer-reviewed clinical data will assist sponsors in gaining evidence-based insights.
  • Provide meaningful, collaborative clinical support that recognizes individual patient characteristics and social determinants of need.
  • Administer utilization management processes that mirror operational workflow while minimizing management burdens.

Key Elements for Successful Medical Benefit Drug Management

Prior authorization in the form of pre-certification is the most predominant mechanism for determining coverage for medical benefit specialty drugs. To a lesser degree, claims processing edits that can be applied before or after claims payment are also utilized. The issue for providers and patients is that traditional medical benefit prior authorizations create administrative burdens for payers and providers and can delay patient treatment.

An alternative option is changing the way traditional prior authorizations are administered by holistically assessing all of the drugs the patient is to receive for the condition and doing so in a provider-centric fashion that minimizes administrative burdens on providers, patients, payers, and plan sponsors.

Additionally, the availability of an actively practicing physician specialist or sub-specialist (e.g., oncologist, hematologist, rheumatologist, ophthalmologist) to provide peer-to-peer interventions on cases that do not conform to payer or plan sponsor coverage rules is a more effective way to build provider collaboration while ensuring best evidence-based practices at a lower cost.

Best Practice Opportunities

The following list represents some options available to sponsors for modifying and improving the medical benefit drug management process:

  • Actively practicing credentialed clinicians, ideally, physician specialists or sub-specialists, to provide peer-to-peer interventions that incorporate the latest nationally accepted evidence-based medicine.
  • Objective site of service management, ideally free from the revenue conflicts of drug dispensing. Research by Milliman states that implementing site of service management can save between 12% and 34% – up to $1.8 billion nationally per year.
  • Integrating relevant clinical data with financial data that ensures concordance to evidence-based medicine while reducing waste.
  • Availability of near real-time transparent and actionable data.
  • Improving the quality of care while reducing the specialty drug trend.
  • Prior authorization mechanism that minimizes administrative burdens while fitting within physician clinical and operational workflows. 
  • Since medical benefit drug claims utilize fewer drug-specific HCPCS codes, it is usually difficult to identify whether the least costly available commercial package size was utilized. One way to address this is by informing providers on clinical appropriateness and approved drug quantities that are cross-walked to the most appropriate commercially available package size.


Managing medical drug spend is more important than ever. Clinical drug review helps improve utilization management of drugs covered and paid under the medical benefit. Site of care helps determine the right location for the safest and most cost-effective care. Data analysis assists plans in developing medical drug fee schedules and adjusting reimbursement rates for a successful return on investment and establishment of uniform rates. Employing timely edits uses a set of drug-specific guidelines to identify medical claims that are out of line with expected cost, quantity, or clinical use.

Thomas A. Sondergeld, Vice President, Global Benefits & Mobility at Walgreens Boots Alliance noted, “One note of caution as we look to the medical benefit drug spend is the importance that needs to be placed on careful analysis prior to taking action. Some medical drug spend may actually turn out to be accomplished more cost-effectively by pulling it out of the physician office. What’s more, other delivery methods may do the exact opposite of what is desired and drive up costs. A surgical approach to interventions, with good data mining, is essential.”


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