Pharmacy Benefits Uncut

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Simple isn’t often a word used to describe employer-sponsored pharmacy benefits. In fact, most plans are so complex they send employers running for the hills and abdicating the important decisions to their brokers and advisors.

But here’s the truth: this complexity is a feature not a bug. Brokers, advisors, PBMs and other vendors in the space are profiting off this complexity. Each employer who just ignores their pharmacy benefits plan and once every three years lets their broker or advisor decide whether to renew their PBM contract is padding the bottom line of vendors at their own expense

There is a way, however, to simplify your pharmacy benefits plan. And if you do it, you'll save money and your plan members' health will improve. So without further ado, let’s take a look at three things you can do to streamline your pharmacy benefits plan.

#1 Follow the Money

If you don’t know how the money’s moving within your plan, you’re likely being ripped off. The financial conflicts of interest in the employer-sponsored pharmacy benefits world are legion. They begin with your broker or advisor, or for that matter any service provider. If they’re taking money from anyone other than you, they’re conflicted. If they’re being paid commissions, incentives, or per-script fees by a PBM they’re working for the PBM not you. But you can refuse to do business with these folks and by doing so you’re eliminating one of the most common misaligned incentives in the industry.

Understanding how your drug prices are determined is another key part of following the money. The vast majority of PBMs use rebate-driven drug pricing, and while promises of huge rebates checks sound great, they’re in fact the flywheel that keeps the upward pressure on list prices of drugs. Also linking compensation for services (e.g. administration fees, clinical services charges) to a percentage of a drug's list price incentivizes use of high-price/high-rebate drugs in place of equally effective, lower-cost generics and biosimilars. Although there may be a move away from rebates in light of the recent FTC settlement with Express Scripts, it’s important to understand that PBMs will replace rebate-driven revenue with other revenue sources such as increased administrative fees. Of course it’s only fair that you pay for services provided by your PBM, but you need to ensure any fee structure aligns with your financial incentives not theirs. Beware any fees tied to the percentage of a drug’s price since they keep drug prices high.

Finally if you’re working with a vertically integrated PBM determine whether they’re shifting revenues to entities they own such as retail pharmacy networks, specialty pharmacies, and mail-order pharmacies. If so, you may be better off working with a PBM that doesn’t control drug dispensing channels.

#2 Standardize Everything

PBM contracts are notoriously complex and many employers sign them without truly understanding what they’re agreeing to. Put an end to this by implementing standard contract templates that every PBM is required to submit as part of the RFP process. This ensures you’re comparing apples to apples. It’ll standardize definitions for drug categories (e.g. specialty drugs, generic drugs), guarantee audit rights and access to prescription claims-level data, and provide clarity on other aspects of your plan such as how the MAC (Maximum Allowable Cost) is established, how formulary listing decisions are made, and which services could be carved out.

Do the same with the RFI process. Only accept responses that are backed by verifiable data. Answers based on rosy assumptions about potential savings related to aggregate rebates or some fancy new AI-based utilization management solution shouldn’t inform your decision making.

Also be sure to standardize other aspects of your pharmacy benefits plan. Examples could include requirements for quarterly reporting of claims-level prescription data, changes to prescription drugs costs by drug category, and changes to formulary listing decisions.

By demanding standard reporting from your PBM you get a clear picture of how your plan is operating and whether it’s serving the needs of plan members at a fair price.

#3 Invest the Time and Effort

It sounds like obvious advice, but you need to commit resources to have any realistic chance of optimizing your pharmacy benefits plan. Yes, you can hire a great consultant who’s working on your behalf and providing excellent advice, but at the end of the day every employer needs to consistently make an effort to ensure their pharmacy benefits plan is working for their members.

This means developing basic in-house knowledge about things like the traditional PBM model, how to assess value, drug formulary management, cost-effectiveness. Educating yourself about a few salient topics in the pharmacy benefits world will help you bridge the knowledge gap that the industry relies on to keep your drug prices sky-high and give you the power to provide your plan members with access to medications that improve their health at the lowest possible cost.

The Bottom Line

The employer-sponsored pharmacy benefits world is designed to be complex to so that various intermediaries in the industry can profit off your pharmacy spend. Taking steps to simplify your plan will put you in a position to control your pharmacy spend and realize value for your pharmacy dollars. Start your simplification journey by understanding where your pharmacy spend is going, requiring standardized reporting, and investing resources in managing your plan.

That’s all for today,

See you in two weeks,

Nina

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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