Pharmacy Benefits Uncut

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In the quest for a solution to your ever-increasing drug spend you’ve probably considered joining a pharmacy benefits purchasing coalition. They’re positioned to as a way to increase the bargaining power of employers through numbers. And for some employers it works but for others it may yield little savings or even lead to increases in overall pharmacy spend.

So today I’m sharing four questions to help you evaluate whether joining a pharmacy benefits purchasing coalition is right for you and your plan members.

Question #1: How is the coalition structured?

The structure of the coalition will play a huge role in determining the kind of savings and advantages that you as the employer will realize. The big issue is who owns the coalition: is it owned by a broker or consultant or is it independently owned?

Broker or consultant owned coalitions offer the convenience of one-stop shopping that provides all your pharmacy benefits services within a single contract along with any consulting services you may need. These coalitions often have financial arrangements with preferred PBMs and other vendors that are designed to steer you to these solutions and keep prescription drugs prices high to boost their revenues. Effectively this arrangement serves as another intermediary in the pharmacy benefits space that’s operating on traditional misaligned incentives.

Independently owned coalitions may offer a more transparent alternative that minimizes misaligned incentives, but the PBMs or vendors they partner with may not be the right fit for your organization. For example, to participate in the coalition you may have to cede control over certain aspects of your pharmacy benefits plan such as formulary customization or access to individual prescription claims data for your members that you can independently analyze.

Be sure you understand the structure of any pharmacy benefits purchasing coalition you’re considering so that you have a detailed understanding of how it will affect your plan and your members.

Question #2: What are the specific benefits of participating in this coalition?

Simply joining a purchasing coalition because it’s been sold to you as a Costco membership for pharmacy benefits isn’t the right approach. You need to take a detailed look at what tangible benefits will accrue to you and your plan members as a result of participating in the coalition.

Consider everything. This includes things like being able to collaborate with other employers and share information and insights into successes and failures of different pharmacy benefits strategies; reducing the need for in-house resources and expertise needed for procuring pharmacy benefits solutions; the potential cost savings of group purchasing; access to customized data analysis and reporting; and contract guarantees to ensure plan performance.

But this shouldn't be a theoretical exercise. It’s needs to be a concrete, evidence-based approach to evaluating the benefits of participation and to do it properly you’ll have to invest the required time and resources. Ask a lot of hard questions of the coalition and of your own approach to pharmacy benefits. Talk to other employers who’re considering joining. Employ a healthy skepticism. Read the fine print.

A comprehensive and realistic examination of the expected benefits is imperative to help you make an informed decision about whether joining a purchasing coalition will in fact help to optimize your pharmacy benefits plan.

Question #3: What are the downsides of participating in this coalition?

Just as you want to examine the benefits of participating in a coalition, you also want to take a hard look at possible downsides.

Things you want to consider here include be forced to use vendors that may not be the best fit for your organization, lack of access to the coalition’s contract with the PBM, having access only to combined data across all organizations in the coalition rather than your own data; not being able to independently audit data; and being subject to aggregate rather than employer-specific contract guarantees from which your organization may not benefit, just to name a few. Evaluate whether joining a coalition is really just another pay-to-play scheme that maybe tweaks your plan a bit but doesn’t actually address the root causes of your skyrocketing drug costs.

Again you’ll have to ask a few hard questions and do some digging to really discover what trade-offs you’ll be making, but it’s only when you do this hard work that you’ll be able to fairly assess whether joining a coalition is the right move.

Question #4: What do the numbers say?

You need to do the math. Benchmarking against your current pharmacy spend is a critical exercise in helping you to determine a) whether you’ll achieve savings through the coalition, and b) if you do save, how much it’ll in fact be. As part of this benchmarking process be sure to assess whether you’d achieve more savings from switching PBMs on your own. And when you do the math don’t forget to include the annual fees that might be required to participate in the coalition AND fees the coalition might owe the PBM that you may also be on the hook for.

As well, consider savings over the duration of the contract. Some coalitions offer three-year contracts that provide savings for the first year to incentivize employers to join and then revert to traditional drug pricing models that favour the PBM or the coalition rather than its members.

The bottom line

Pharmacy purchasing coalitions often provide an appealing alternative to employers by providing expertise in PBM procurement and the potential for drug cost savings. But they can also be rife with misaligned incentives that are designed to benefit the coalition and the PBM at your expense. So just as you would do your due diligence during your own PBM procurement process, you also need to exercise it when deciding whether to join a purchasing coalition. Like everything else in the healthcare space, it’s a situation of buyer beware.

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Pharmacy Benefits Uncut is produced by Healthcare Decision Making, a consultancy that helps small and medium sized employers optimize their pharmacy benefits plan. We offer a comprehensive range of services focused on three areas: PBM procurement, ongoing management of your pharmacy benefits plan, and self-policing and oversight of your pharmacy spend. To learn more about how Healthcare Decision Making can help you, email Nina Lathia at nina.lathia@healthcaredecisionmaking.com