Prescription costs continue to climb year over year. Today, they exceed 20% of overall healthcare costs. Meanwhile, pharmacy benefit managers (PBMs) profit from a variety of hidden revenue streams, further inflating costs for plan sponsors and their members.
Many PBMs are compensated on a per-prescription-claim basis, providing no incentive to eliminate unnecessary or even dangerous drug utilization. What’s more, many PBMs are now a part of large conglomerates that also own insurance companies and retail pharmacies. This can create conflicts of interest, leading to additional unneeded and wasteful utilization.
There are some PBMs that align with member and plan sponsor interests, but how can benefit professionals identify them? We believe that to lower costs now and in the future, PBMs must embrace the following practices. Benefits professionals can watch for these practices to find a PBM that will do right by their clients.
1. Pay-for-Performance Programs
Traditional PBMs profit in three primary ways: rebates, administrative fees, and spread on paid pharmacy claims. They often have little incentive to lower plan sponsors’ overall costs because of the nature of some of these revenue streams.
For instance, traditional PBMs often hold on to drug rebates in whole or in part. The end result is higher costs for patients and plan sponsors. The PBM may also promote name brand drugs over generics because they profit from brand name rebates, despite the fact that generics save money for patients and plan sponsors, who together largely share the costs for prescription drugs. This represents a conflict of interest because members and plan sponsors don’t enjoy the complete benefits of these rebates and generic alternatives.
With a pay-for-performance program, there is an alignment of interests between PBMs, patients, and plan sponsors because the program provides the lowest net cost, which adds tremendous value and helps benefit professionals fortify relationships with their clients. Under such programs, the PBM pays if prescription spending rises above a guaranteed maximum. If spending is below that guaranteed threshold, then the PBM receives a share of the savings. This structure holds the PBM accountable and ties its success directly to how well it reduces overall drug spending.
2. Robust Clinical Programs
According to Segal Consulting, prescription trend (the cost increase from one year to the next) including specialty medications averaged nearly 8% over the past three years. However, our PBM has delivered an average trend of less than 1% during that same period. One of the primary ways we’ve been able to tame trend numbers and come out way ahead of the industry is through an advanced claim processing system that enables robust clinical programs at the point of sale. Strong clinical offerings can save plan sponsors money while improving health outcomes for their members by identifying and addressing inappropriate utilization before a member leaves the pharmacy.
Most PBMs are compensated on a per-claim basis, meaning they profit every time a claim is processed. This can reduce incentives to implement powerful clinical programs, such as comprehensive point-of-sale drug utilization reviews that look for issues such as duplicate claims and therapies, members stockpiling medications, and medications that are contraindicated based on the patient’s medical or prescription history. These issues can be a particular danger for members who see various providers and take a number of medications.
In June of 2018, ThinkAdvisor published an article on pharmacogenetics, an emerging clinical tool that takes into account differences in patients’ metabolism that can impact how they process certain medications.
Data such as this can be incorporated into complete health profiles to support innovative clinical programs that reduce waste, improve outcomes, and lower overall healthcare costs.
3. PBMs and Transparency
State and federal legislators have called on pharmacy benefit managers to answer for the lack of transparency and complex business models that may not serve the public good. Although PBMs have responded with promises of change, worries continue over hidden costs and the truth of how PBMs operate. This is because there is no standard definition of transparency in the PBM industry, costing plan sponsors in all sectors millions of dollars annually in unnecessary prescription spending.
Benefits professionals should seek full auditability, access to complete claims data, and options for pure pass-through and pay-for-performance PBM programs. This helps minimize hidden revenue streams that continue to tarnish the industry’s reputation.
The real challenge in regard to PBM transparency is finding a means of fair comparison. With no two PBMs defining transparency alike, it becomes difficult to assess how well they truly control drug costs. The traditional spreadsheet used to grade PBMs looks only at rebate amounts and discount guarantees. They don’t take into account savings and improvements to member health gained through responsible clinical management. Reducing prescription costs is about more than just negotiating lower prices; it’s amount better detection of fraud, waste, and abuse, and preventing unnecessary and potentially dangerous utilization. These are the variables that drive costs up over time. Benefits professionals should look beyond the spreadsheet and ask tough questions to unearth how much a PBM can truly save clients money now and in the future.
Benefits advisors can help lower prescription costs by aligning with PBMs that offer purely transparent contracts and comprehensive clinical programs. They should also seek pharmacy benefit manger partners that offer pay-for-performance options focused on long-term savings.
Patients, plan sponsors, and our government are demanding better pharmacy benefit management. Brokers and consultants armed with this knowledge will surely be catalysts for change and push for PBMs to evolve.
— Read Drugs Might Be the 2019 Health Cost Good Guy: CMS Actuaries, on ThinkAdvisor.
Michael A. Perry is the president of BeneCard PBF, which offers a pay-for-performance PBM program.