Pharmacy Benefits Uncut

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I had the privilege of Speaking at the National Alliance of Healthcare Purchaser Coalitions Strategic Leadership Summit last week, where the focus was on employer direct contracting for healthcare services. The goal of this strategy of course is cutting out intermediaries who in many cases consume a large proportion of your healthcare dollars while providing little in return. I’m looking at you here, PBMs.

While direct contracting for services may not be the best option for every employer, every employer needs to be directly managing their pharmacy benefits plan if they want their drug spend to contribute to improved health for their plan members. Of course, what this looks like practically for you will likely be quite different than what it looks like for an employer down the street or across the country. But, if you can take direct control of your pharmacy benefits plan, you’ll be able to transform it into what I call a unicorn – a plan that decreases spend while improving health outcomes. Here are the three things you need to achieve unicorn status.

#1: Transparency

This word has become so overused in healthcare to the point it’s been debased, but here’s what it should mean: that your pharmacy benefits plan doesn’t operate as a black box. You should know how every dollar is flowing between the stakeholders in your plan and how every decision concerning your plan is made.

What you’re paying for each drug, what you’re paying your PBM in fees, what drug manufacturers are paying PBMs in rebates and other fees, what PBMs are paying pharmacies, to name just a few of the complicated financial transactions in the employer-sponsored pharmacy benefits world.

Also, how your PBM decides which drugs to include in your formulary and which drugs get into the preferred tiers, how it defines specialty drugs, how it establishes prior authorization criteria, how it determines which pharmacies are part of your network, again just to name a few.

Knowing how the money moves and how decisions are made is the foundation of taking direct control of your pharmacy benefits plan, because let’s face it, you can’t control what you’re not aware of.

But transparency isn’t enough. Just because you know what’s going on the in the back room, doesn’t mean it’s the best solution for you and your members. Keep reading about what else you need to do to ensure you’re in charge of your pharmacy benefits.

#2: Value

This is another word that’s been terribly overused in healthcare and whose definition seems to vary widely depending on the stakeholder. But for you and your pharmacy benefits plan it means ensuring every dollar of drug-spend leads to improved health outcomes for plan members. Naturally it implies limiting the amount of money leaking to intermediaries like your PBM, but this a big ask particularly if you, like many employers, rely on your PBM to effectively manage every aspect of your pharmacy benefits plan including claims adjudication, formulary management, drug pricing, clinical services, and data access.

The first step to achieving value will involve focusing not simply on transparency regarding how your money is being spent but also evaluating what you’re getting in return for these dollars. Do your drug prices represent the lowest net cost? Are rebates in fact driving up your drug costs rather than saving you money? Are your plan members making use of clinical programs being offered by your PBM?

If the answer to any of these questions is no, it’s time to look at other vendors and solutions. Consider whether another PBM can offer lower drug costs. Consider whether hiring an independent vendor to manage your formulary will help you achieve better health outcomes for your plan members by steering them to the lowest cost, most effective drugs. Consider whether partnering with local independent pharmacies will provide better access to clinical services for your members which could improve medication adherence and decrease overall health spend.

#3 Incentives

There’s the famous saying, “show me the incentive and I’ll show you the outcome” and it rings absolutely true in the pharmacy benefits industry. In many cases, the interests of your PBM and other vendors in this space are not aligned with yours. The rebate system which underpins the workings of your PBM has been shown to drive up drug prices not save you money as it’s often claimed to do. It’s designed to promote the use of high list price-high rebate drugs in favour of drugs with the lowest net cost. Other vendors such as advisors or brokers may also be incentivized to promote solutions that increase your costs yet provide no additional benefit compared to lower-cost options.

These kinds of perverse incentives don’t just increase your spending but can also lead to downstream effects such as increased out-of-pocket costs from plan members and the risk of health inequities that end up adversely affecting the health of your plan members. Whenever you’re evaluating a vendor, the first thing you need to consider is whether their interests are aligned with yours. If not, it’s time to look elsewhere for solutions that meet your needs rather than pad the bottom line of your vendors.

The Bottom Line

I’m describing a pharmacy benefits plan that decreases spend and improves health outcomes as a unicorn because it’s so rare. But that doesn’t mean it’s not achievable. There are employers who’ve been able to build a pharmacy benefits unicorn and you can too.

Use this goal as your pharmacy benefits North Star and examine all of the barriers standing in your way to unicorn status. Then focus on fixing them by evaluating every solution you’re considering in terms of transparency, value, and incentives.

That’s all for this week.

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