Compounded Prescriptions – Does your Plan have a Management Strategy?

On November 27, 2013, President Obama signed the Drug Quality and Security Act (DQSA). This legislation contains important provisions relating to the oversight of compounding of human drugs. While this legislation focuses on patient and medication safety involving the preparation and dispensing of compounded medications, it does nothing to monitor and support appropriate use and cost management from a payer perspective. 

Industry-wide, there is a growing popularity to prescribe compounded prescriptions. This coupled with the rise in utilization of pharmacies specializing in compounding prescription services, reinforces the importance for Plan Administrators to have an implemented strategy in place to monitor this segment of prescription utilization.

A compounded prescription is “prepared” from scratch based upon a prescribing physician's order under supervision in a Pharmacy by a Pharmacist or authorized personnel. A compounded prescription contains no less than two ingredients and is not otherwise commercially available in the designated strength(s) or formulation (Note-drug shortage situations can create exceptions). These compounded prescriptions typically are billed at a premium price point vs. commercially available preparations.

Express Scripts recently highlighted this cost difference and trend growth for compounded prescriptions in their recent Workers Compensation Drug Trend Report for 2013 which was released in April 2014.  The report found that the use of compounded prescriptions increased 71.9% from 2012 to 2013, In addition to more compounded prescriptions being processed, the average cost per compounded medication increased 29.8%, averaging $1,299.13.

Currently, an industry standard does not exist to calculate reimbursement for compounded prescription services. Variation can occur by PBM, pharmacy network participation, and/or individual Plan parameters. This inconsistency supports the argument for Plans to proactively define desired coverage and reimbursement parameters.

Many Plan Administrators are unaware that current billing/reimbursements practices for compounded prescriptions may not:

1. Monitor the service billing amount submitted from the pharmacy provider. There is no fixed reimbursement rate so claims payment is gauged by the billing amount requested by the pharmacy provider.
2. Prevent the use & billing of ingredients which otherwise would be “excluded” under the benefit due to a lack of sophistication within the billing/adjudication platform.
3. Call out a different oversight for payment and reimbursement criteria (e.g. caps, Prior-authorization, etc.) for compounded prescriptions unless specifically requested by the Plan.
4. Identify or examine trends/costs specific to compounded prescription services as part of the regular reporting information provided to the Plan 

This article is not meant to debate the appropriateness of compounded prescriptions or imply there are not legitimate circumstances for the use of compounded prescription services. It is simply meant to create awareness of the value in defining and implementing a compounded prescription strategy because of the marketplace circumstances noted. Absence of a prescription benefit management strategy for this type of prescription service leaves programs vulnerable to cost escalation in this growing area. Unfortunately, Plans may be unaware of their vulnerability in this area. These missed savings management opportunities may not ever be identified unless they become significant enough to be defined in the “Top 25” type of traditional marketplace utilization reporting materials provided by Pharmacy Benefit Management service providers.  Either way, it’s a missed opportunity—one that could be mitigated monitored, and managed.