In 2012, in an effort to promote cost transparency, new regulations were issued requiring pharmacies to list all drugs included in a compounded medicine when seeking reimbursement. Previous protocol required that only the most expensive drug be listed, and reimbursement was based on the cost of that drug.

At the same time, drug manufacturers escalated the cost of the bulk powders used in making these compounds. A cottage business of “compounding pharmacies” quickly sprang up, which began charging separately for each drug in the compound and creating compounds where none were needed.

This process inflates the costs of these medications to ten or more times their previous level. For one client, compound drugs accounted for 10% of drug spend in the most recent experience period.

Pharmacy Benefit Managers were quick to identify this trend and at first recommended that plan sponsors require prior authorization for compound medications. A few are an effective, low-cost treatment for certain conditions. After further evaluation, the new recommended strategy is to deny coverage for compounded medications unless the FDA has approved the compound as a therapy for a specific condition—which should eliminate the issue.

The PBMs are also identifying culprit pharmacies and removing them from their networks.

Laws changed, a loophole was identified, and millions of dollars were wasted until the loophole was eventually closed. This vividly demonstrates that regulators and legislators are not as agile as those that seek to profit from the system.

Our complex healthcare system needs the checks and balances provided by health insurance companies, pharmacy benefit managers and benefit advisers, brokers, and agents to keep an eye on things.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access