How To Effectively Manage High-Cost Medical and Prescription Drug Claims

December 19, 2023

David Stoddard

High-cost claims are typically the largest driver of spending in a health plan. As such, employers who offer health benefits must consider effective ways of managing their high-cost claims. Fortunately, there are many options for doing this, and an employer can choose a combination of choices best suited for its population and plans. These solutions include claims review, patient management, preventive care, and prescription drug management, which will be reviewed in more detail in this article.

clipboard, heart, stethoscope and a piggy bank

Claims Review

  • Identifying high-cost claims: Before implementing programs designed to manage high-cost claims, it is important to identify what those claims are. Employers need to be able to answer what specifically drives their healthcare spending. Are there specific diseases or diagnoses that are more prevalent than others? Does a certain provider or geographical area occur more than expected? Understanding the specific drivers will point employers in the right direction for deciding which solutions to implement. 
  • Reviewing high-cost claims: Once high-cost claims are identified, the next step is to review them. At a minimum, reviewing the claims will ensure that each claim is accurate, complete, and medically necessary. In addition, a review can be part of a larger data analytics approach to identify patterns and trends, which can be the basis for choosing the appropriate management strategies.
  • Negotiating with providers: For certain high-cost procedures, it may be beneficial for an employer to negotiate directly with the provider rather than working through their insurance carrier or third-party administrator. While this is not an option for smaller employers, larger employers can realize savings for high-dollar claims known in advance (e.g., transplants). 

Patient Management

  • Utilization management: A utilization management program will ensure that services associated with high-cost claims are appropriate, necessary, and efficiently delivered.
  • Case management: Case management is a more targeted approach than utilization management. A case management program employs a case manager who reviews the treatment a specific high-cost claimant receives and works with the patient to coordinate their care and ensure that they receive appropriate and cost-effective care.
  • Clinical programs: There are various point solutions that specifically address certain categories of healthcare, such as maternity care, cancer, dialysis, etc. Employers should review their actual and expected high-cost claims data and determine if one or multiple clinical programs would effectively manage their high-cost claims. Specialized point solutions are generally more impactful for controlling the costs of a diagnosis or disease category than utilization management or case management. 
  • Centers of excellence: Employers can partner with a center of excellence for a specific procedure or disease. A center of excellence is defined as a healthcare institution specializing in a particular medical area based on having a high concentration of expertise and the ability to deliver treatment in a comprehensive, interdisciplinary fashion. If employers can encourage their plan participants to receive treatment at a center of excellence (either through education or financial incentives), it should result in a reduction in claims and an improvement in health outcomes. 

Preventive Care

  • Promoting preventive care: Employers should consider promoting preventive care to their employees. While an increase in preventive utilization will not immediately impact high-cost claims, it could pay dividends in the long term, as a patient who does not receive preventive services will create gaps in care and have an increased likelihood of a future high-cost claim. Employers can utilize financial incentives, offer time off for wellness visits and exams, and increase employee education to encourage preventive use. Improved preventive care is directly correlated with early diagnoses, which will reduce high-cost claims.
  • Promoting mental health support: Mental health can be considered a subset of preventive care. The employee population’s mental well-being is crucial for not only maintaining overall population health but also reducing absenteeism and presenteeism, which would not necessarily impact healthcare costs but almost certainly have an impact on overall business costs. Employers are required under the Mental Health Parity and Addiction Equity Act (MHPAEA) to offer mental health benefits comparable to the medical benefits they offer, but promoting mental health support would take that a step further. Employers can engage in employee communication campaigns and/or partner with a third-party mental health vendor to ensure their employees are getting the mental care that they need. 

Doctor examining a patient's ear

Prescription Drug Management

  • Gene therapy / orphan drug exclusions: Gene therapy drugs are the newest wave of very expensive prescription drugs. These drugs generally treat rare diseases, cost six or seven figures, are taken over a relatively short period (under a year), and aim to cure the disease they are treating. While the long-term benefits allegedly pay for themselves (in reduced future claims) and significantly improve the patient’s outcome, the cost of the drug can be a shock to a health plan, and the rarity of the diseases they treat increases the unpredictability of the drug significantly. To avoid this combination of high cost and low predictability, many employers have chosen not to cover gene therapy drugs.
  • Third-party subscription model: Alternatively, employers can carve out gene therapy coverage. Some reinsurance carriers offer a third-party subscription model, which pools coverage for these drugs across a much larger population. Employers can offer coverage to their plan participants for a modest per-employee per month fee and reduce the volatility (similar to how stop-loss coverage works). 

Employers offering healthcare coverage to their employees can use various tools and resources to address high-cost claims. While not every single solution will be appropriate for each employer, there will generally be a combination that will be effective and align with the employer’s overall benefits strategy. To understand and access the optimal strategy, employers should work with a benefits advisor who understands the employer’s specific issues (by analyzing the claims data) and can deploy a targeted plan based on the data and the employer’s wants and needs.