A good drug price is irrelevant if the medication shouldn’t have been prescribed in the first place. Choosing the right PBM help manages drug utilization.
Healthcare plan participants typically use pharmacy benefits more than any other part of the health & welfare program. Pharmacy benefits are also the fastest-growing in terms of cost. Choosing the right PBM (pharmacy benefit manager) can keep your members happy and your program costs under control.
Employers are increasingly pulled in many directions when it comes to employee benefits, and pharmacy benefits in particular. They are under pressure to maintain employee engagement and satisfaction while keeping costs under control. This is no easy feat, especially as the cost of benefits increases each year.
Employers are more sophisticated about choosing the right PBM than they were just five years ago, which means expectations of what PBMs provide have changed. Previously, employers were mainly concerned with the drug prices PBMs offered. Transparent pricing, low markups and high rebates help manage costs.
PBMs are now charged with helping employers manage utilization. Yes, prices, discounts and rebates all still matter, but a good price on a drug is irrelevant if the medication should not have been prescribed in the first place.
A PBM should actively manage the drug formulary by excluding unnecessary medications and putting hard edits on others. The right PBM reviews how certain drug classes, such as opioids, are prescribed. They manage high-cost drugs and create strategies to prescribe them only when necessary, and they manage prescribers.
There are typically three ways employers work with PBMs:
- A PBM bundled with the insurance carrier.
- A “third party carve-out,” in other words, a PBM that is separate from the insurance carrier.
- A third party carve-out through a consortium arrangement. This could be through a broker or an industry cooperative.
PBM Bundled with Carrier
Pros: This approach is easy to administer. You’re only dealing with one carrier, one contact and one service team. Additionally, the carrier provides consolidated reporting with all information in one place.
Carriers, who obviously have some bias here, claim that they can administer medical management better when they have everything under one roof. Studies seem to vary on the validity of these claims, although some large carriers now have third-party audit firms that can show how much claims have been reduced by bundling a carrier with a PBM. In addition, as PBMs transition from serving as a go-between to being involved in member management, gaining easier access to data could help with this.
Importantly, several large PBMs, including CVS Caremark and Express Scripts are in talks to merge with, buy or be acquired by carriers, which will change the PBM landscape and put more integrated options out there.
|Cons: Bundling reduces flexibility. The employer doesn’t control the terms of the agreement with the PBM, and doesn’t have control of formularies, contract terms, preferred drug lists, etc. The medical carrier has the freedom to change their PBM partner, which could be disruptive to plan participants.|
Third Party Carve-Out
Pros: Employers who choose a standalone PBM have more plan design flexibility. The third-party approach provides greater control over the terms of the contract, and the employer often saves money by cutting out the middle man. There’s also an opportunity for greater transparency.
Cons: You are dealing with a separate administration, which means you have to manage another vendor and relationship. Some carriers will charge plan sponsors for not using their PBMs, applying line-item expenses such as reporting fees, connection fees or increased administration fees, etc. With this approach, the plan sponsor loses the ability for some bundled servicing. For instance, the carrier’s service representative may not have access to prescription data and can’t get a total picture if there’s an issue. The plan sponsor is tasked with coordinating deductibles, out-of-pocket maximums and coinsurance between the PBM and carrier, which can get messy.
Additionally, these arrangements are often multi-year contracts, so they should not be entered into lightly.
Third Party Carve-out Through a Consortium
|Pros: When you sign on with a consortium-based PBM you receive increased buying power, which should translate to lower costs. You also have a well-informed expert that’s helping to negotiate and oversee the plan. In addition, buying through a consortium opens up more options to small- and mid-sized businesses in particular.|
|Cons: By going through a consortium, you have put another middle man back in play, leading to reduced flexibility. While the consortium-based PBMs push cost-savings hard in their sales process, it doesn’t always play out for the employer. Specifically, the plan sponsor may lose control over the terms of the agreement with the PBM, and depending on the arrangement, may not have control of formularies or other pieces of the plan. Gaining full disclosure into the terms of the agreement can also be a challenge at times, meaning some consortiums do not provide full disclosure to allow for a true, autonomous comparison. In the end, the plan sponsor is still buying through a group, which means facing abrupt service changes. The consortium could change PBMs, which could mean the employer is stuck with no recourse but to undergo an unplanned change—although this scenario is not common.|
As pharmacy benefit costs continue to increase, the process to select the right PBM is complicated, and something not to take lightly. But understanding how pharmacy benefit managers work, what the options are and how data can help manage members, can lead to more informed decisions. This strategy can ultimately support cost containment and healthier employees.
- PBM Drug Pricing: When is a Generic Rx Not a Generic?
- Another Way to Improve Employee Wellbeing: Disease Management
- The Role of PBMs in the Rx Drug Supply Chain…and Why it Matters to Employers
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