Kaiser Permanente says its Washington pharmacy benefits delivered sizable savings for employers in 2023, according to a new actuarial analysis that Kaiser commissioned. The review found that Washington employer groups buying commercial HMO coverage through Kaiser spent about 26% less on prescription drugs than comparable local plans, while PPO groups spent about 15% less. That works out to roughly $21.52 and $15.56 saved per member per month, respectively, with the study framing the gap as savings to both employers and covered employees rather than short-term manufacturer rebates.
Study snapshot
The actuarial firm Milliman built a propensity score matched benchmark of mid-to-large employer groups in Washington and then used regression modeling to adjust for demographic and clinical differences. After those adjustments, and looking at results net of rebates, Milliman found a 26% reduction in allowed prescription drug spending for Kaiser HMO plans, or about $21.52 per member per month, and a 15% reduction for PPO plans, or about $15.56 per member per month. The estimates are statistically significant at the 99% confidence level, according to Milliman.
Kaiser’s perspective
“This study will help consumers better understand the real value of our integrated pharmacy model,” Sharon Burks, executive director of pharmacy for Kaiser Permanente Washington, said in a press release. Burks said Kaiser uses purchasing power, an evidence-based formulary and coordinated medication management to drive lower net drug costs, and pointed readers to the full study for details on methods and limitations in a statement via Kaiser Permanente.
Why employers should care
Prescription drugs touch most Americans, with about two-thirds of adults reporting that they take at least one prescription medication, according to KFF. Pharmacy spending is also a major driver of health insurance premiums. An industry breakdown from AHIP found that prescription drug costs accounted for roughly 22 cents of every premium dollar in the 2018 to 2020 period, which helps explain why employers watch pharmacy performance so closely.
How Kaiser achieved the gap
Milliman attributes much of the difference to higher generic dispensing rates, greater use of biosimilars and lower allowed costs in Kaiser’s retail, mail-order and specialty pharmacy channels. The report notes that Kaiser’s generic dispensing rate ran close to 89%, compared with about 84% for the matched Washington market. Those channel and formulary differences, along with Kaiser’s integrated pharmacy network and purchasing strategy, account for most of the net-of-rebate gap in allowed pharmacy spending, Milliman finds.
Local coverage and reaction
Local business outlets and health care trades quickly picked up on the findings, highlighting both the employer savings and the policy questions the results raise about pharmacy supply chains. As reported by The Business Journals and summarized in industry coverage from Becker's Hospital Review, much of the conversation has focused on whether other employers and plans can realistically replicate those channels and formulary levers.
What employers should take away
For Washington employers, the analysis offers a concrete example that pharmacy benefit design can materially affect what they and their workers pay for medications. The report comes with caveats, though. Kaiser and Milliman note that the study excluded Medicare members, people living outside Washington and very large “jumbo” employer accounts, and they recommend that employers work with actuaries to assess how closely the findings might apply to any specific plan. Still, for companies looking to blunt drug-driven premium increases, the report points to formulary strategy, biosimilar adoption and pharmacy channel design as levers worth examining, according to Kaiser Permanente.
