Pharmacy Benefits Uncut

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Want to know the biggest barrier to optimizing your pharmacy benefits plan?

Information asymmetry: Your PBM and other stakeholders in the pharmacy benefits world have access to information you don’t. And therein lies the problem: what you don’t know is costing you and your plan members money, likely lots of it.

The most glaring example of information asymmetry is probably between you and your PBM, particularly if it’s a traditional PBM. In fact, these entities rely on a business model of opaque practices and relationships designed to obscure the true price of drugs from you, the payer. These are the most common instances of information asymmetry between you and your PBM:

1) Rebates: They’re supposed to reduce your drug costs but may actually be driving them up. In the traditional PBM model, the PBM retains a portion of the rebate and as rebates increase it retains a greater amount. However, you’re likely unaware of how much your PBM is retaining and the black box of schemes it’s using to maximize its bottom line while convincing you that larger and larger rebates are the only way to control your drug spend.

2) Spread pricing: The PBM reimburses the pharmacy less than it charges you for a drug and retains the difference, but you have no information about this flow of cash unless your contract stipulates pass-through pricing.

3) Formulary management: You rarely have any visibility into how your PBM decides which drugs are included on your formulary and which tiers they’re placed on. Clinical effectiveness and cost-effectiveness may not be the primary criteria used in these decisions, but rather rebates and other financial incentives from manufacturers may be the main determinants of formulary coverage.

4) MAC (maximum allowable cost) Price List: It’s ostensibly designed to promote drug price competition by defining the upper price limit for drugs. But each PBM uses different inclusion criteria and determines prices differently, and you as the plan sponsor rarely have insight into this process. This allows PBMs to set drug prices that are advantageous to them while you pay more than you should.

5) Data Access and Analytics: Although there’s a general requirement for PBM’s to provide you with access to data on individual claims, the extent of data you have access may vary depending on the specific terms of your contract potentially creating blind spots for your plan and limiting independent oversight of your pharmacy benefits.

In addition to information asymmetry between you and your PBM, there’s likely an information imbalance between you and other pharmacy benefits stakeholders. Folks like your broker, other vendors who provide solutions in the pharmacy benefits space, and even regulators.

Besides the fees you pay your broker, they also receive payments from other sources. The Consolidate Appropriations Act (CAA) of 2021 requires disclosure of ALL compensation, direct and indirect, paid to brokers. Direct compensation is paid by the service provider (e.g. consulting fees paid by the PBM), whereas indirect compensation is paid by a third party (e.g. commission from a TPA). Despite these disclosure requirements, your broker may be accepting hidden compensation that represents a conflict of interest. Bonuses, commissions, and “per member per month” fees contingent on increased drug spend prevent brokers from acting in your best interest and it’s imperative you’re aware of these financial arrangements.

You may also be partnering with other vendors providing solutions in the pharmacy benefits space such as specialty pharmacy management, prior authorization carve out, or comprehensive medication management. These vendors could, intentionally or not, be withholding important information from you. For example, a vendor responsible for your prior authorization decisions may be working with clinical experts receiving consulting fees from a pharmaceutical company that manufactures drugs they’re charged with evaluating. A clear conflict of interest that could be preventing them from acting in your best interest. It’s this type of information that you’re often not privy to but may be driving up your drug spend.

As a plan sponsor, you may not deal directly with a regulator such as the FDA, but it’s an important stakeholder that influences your pharmacy benefits plan since its decisions determine which drugs receive market approval. It may surprise you that many of the studies it uses to evaluate drugs are not publicly available. A recent review of evidence used in FDA approvals showed that only about 30% of study results were available 6 months after approval of a drug. This absence of this information means it’s nearly impossible for you to conduct independent assessments of the effectiveness and safety of new drugs.

Managing your pharmacy benefits plan is no easy task and it’s made harder when you’re missing important information preventing you from making decisions in the best interests of your plan and plan members. The good news is you can address these information gaps, and more knowledge equals more power to take control of your pharmacy benefits plan. Here’s what you can do.

Three Strategies to Address Information Asymmetry

Use these strategies to gather the information you need to optimize your pharmacy benefits plan.

1. Be aware of information asymmetry

Understand that the pharmacy benefits world is rife with information asymmetry and it's affecting your ability to make the best, most clinically and financially sound decisions for your plan and plan members. Also understand that it’s in the interest of most vendors and stakeholders to keep it this way. The less you know, the greater their advantage.

Determine which information gaps are contributing to the greatest challenges in managing your pharmacy benefits and put in place a concrete plan to address them. As the saying goes, knowledge is power and in this case it’s probably also large sums of money that are ultimately coming out of your plan members’ pay checks.

2. Develop a basic understanding of all aspects of your pharmacy benefits plan

Once you’ve identified the important information gaps, you’ll need to do a bit of homework. Work on developing a basic understanding of all of things related to your pharmacy benefits plan. You don’t need to become an expert in healthcare contracting law or drug formulary decision-making, but you do need a basic understanding of things like PBM contracts, drug formularies, and comparative effectiveness, to name a few. A little while ago I shared a framework to help you develop the knowledge you need to take control of your pharmacy benefits plan. Use it to gain the leverage you need to address the information asymmetry the pharmacy benefits industry is using against you.

3. Ask lots of questions

Once you’re aware of specific information gaps you need to address and you’ve developed a fundamental understanding of the pharmacy benefits landscape, you’ll be able to ask some hard questions.

And this is how you bring it home: by demanding transparency and answers from your vendors.

By asking your PBM why greater and greater rebates over the last five years haven’t reduced your drug spend but rather have sent it skyrocketing upwards at a rate of 9.2% per year. By asking your specialty pharmacy solution provider whether their clinical expert has any conflicts of interest with pharmaceutical manufacturers. By asking your broker to provide written disclosure of all direct and indirect compensation they’re receiving.

You get the picture. Asking the hard questions positions you in the driver’s seat. It puts you in control of your pharmacy benefits plan and gives you the leverage to demand a better deal for you and your plan members.

The Bottom Line

If you don’t know about the information gaps that exist in the pharmacy benefits world, you’re destined to stick with the same strategies and vendors that have led your plan to become financially unsustainable. But knowledge is power. Your vendors have known this for a very long time and have used it to their advantage. Close the information gap and you’ll gain the power. The power to transform your pharmacy benefits from a bottomless money pit into a pillar of improved health outcomes and financial sustainability for you and your plan members.

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

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