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Some brokers wonder whether the growth of pharmacy benefit management companies has come at the expense of employers.

Brokers who have clients with self-funded prescription plans can protect their client employers by working with pharmacy consultants who can grade the PBMs’ performance.

A detailed analysis provided by a good pharmacy management consultant can cut overall pharmacy costs at least 3%.

Drug costs trend continues to be an important indicator of how well the PBM is managing costs. Year-over-year trend of less than 10% is a good indicator of a well-managed program, but a review may indicate a PBM is holding down costs by simply shifting the burden to employees through higher co-payments and coinsurance.

Additionally, a pharmacy management consultant can help employers analyze a variety of components, including how the money flows in and out of the PBM. purchasers.

The Contracts

A PBM negotiates separate deals with pharmacies and drug manufacturers.

The standard approach for pharmacy reimbursement for dispensed prescriptions is to pay an ingredient cost, plus a dispensing fee. Negotiating the definition of the “ingredient cost” and the dispensing fee is the first step in structuring a more cost effective PBM contract.

Negotiating manufacturer rebates, or price concessions, can be even more complicated.

Rebates are moneys returned by the pharmaceutical manufacturer to the PBM based on volume of product purchased. PBM clients usually negotiate a share of the rebate provided to the PBM from manufacturers. As part of the analysis and contract negotiation, an employer should require a full explanation of a PBM’s rebate contracts and a detailed analysis of the projected rebate revenue stream.

The Drugs

Efforts to affect which drugs employees buy and how employees buy the drugs have a direct and immediate effect on employees and costs. There are a wide variety of ways to maximize savings and still maintain high quality of care.

1. Formularies.

A formulary is a list of drugs that a health plan will cover.

Many health plans carefully review the efficacy of new drugs before adding the drugs to their formularies. A review can help reduce the employee’s use of costly and heavily advertised new drugs. Employees often are better off using older, less costly and equally effective medications.

2. Generic substitution.

The objective of generic substitution is to increase the use of generic drugs and have generic drugs dispensed whenever possible. A PBM usually uses co-payments to encourage consumers to use generic drugs and formularies to encourage physicians to prescribe generic drugs.

Many costly, name-brand medications are now off patent, but generic manufacturers’ prices vary widely. Consequently, employers and health plans need to insist on a “maximum allowable charge,” or MAC, program to limit the amount they pay for a generic.

3. Drug utilization review.

Nearly all PBMs offer to review requests for prescriptions for certain costly medications.

4. Mail order prescriptions.

Mail service pharmacies offer convenience and lower costs to consumers, and are a desirable cost-control strategy. As with generic medications, this is an area where it is important to have MAC pricing in place to maximize savings.

The Patient Programs

Employers with self-funded plans can share more costs with employees by increasing co-payment amounts and coinsurance levels.

Increasing out-of-pocket costs at the point of purchase can discourage employees from buying drugs that they don’t really need and make them more aware of the cost of brand name drugs.

Disease management programs are another, increasingly popular prescription plan tool. The programs provide special care, advice and monitoring of patients with specific medical conditions. An effective PBM disease management program that promotes patient compliance with physician instructions can improve the quality of care and lead to dramatic reductions in prescription drug costs and overall care costs.

is vice president of Evergreen Re Inc., Stuart, Fla., a national health care consulting and brokerage firm that provides reinsurance and other risk reduction products and services for health plans, hospitals and self-funded employers. His e-mail address is whumphreys@evergreenre.com.


Reproduced from National Underwriter Edition, April 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.