Pharmacy benefit managers (PBMs) fill a critical role in the delivery of healthcare benefits to plan members. On average, your PBM will process one prescription for every member in your plan every month. It is by far the most utilized benefit you offer in terms of claim volume.
In addition to the number of claims, there are thousands of different medications that can be used by your members to treat the many conditions and symptoms they present with every day. These thousands of drugs all have different prices that change month to month. The pharmacies that fill the prescriptions are contracted at different rates. The manufacturers of these drugs offer many types of retrospective discounts through the PBM, wholesaler, and pharmacy. All of these components lend to the complexity of determining what you pay for prescription drugs.
Many PBMs take advantage of the complexities to squeeze out more profit from the program. These PBMs have developed sophisticated tools and programs that allow them to build in additional revenue that is often not disclosed to the client. These hidden fees create incentives for the PBM to maximize the use of medications and delivery channels that create the most profit for the PBM.
While the pursuit of profit on its own is a fundamental goal of most businesses, in the case of healthcare, it can lead to the selection of medications and delivery options that are not the most economical choice for the client or even the best treatment option for the patient.
The business model described above has given the PBM industry a bad name. Every day there is another news article about a PBM being sued by a state attorney general for hidden charges in a statewide contract or colluding with pharmaceutical manufacturers to drive up drug costs. PBMs are often described as the “middle man” adding cost to the system while adding little or no value to the process.
How PBMs Add Value
The fact is that PBMs do add value. The claim processing standard followed by PBMs is the most efficient system in the healthcare industry. PBMs negotiate prices that pharmacies would not offer to individual patients that were paying cash on their own. This has been proven by the success of discount cards like GoodRx.
Who has not seen the commercial where the pharmacist offers the distraught parent a better price on their child’s expensive medication if they sign up for GoodRx. Why doesn’t the pharmacy just offer the better price on its own? Because the PBM behind GoodRx is negotiating with the pharmacy on the patient’s behalf for a price the pharmacist won’t offer. The patient does not have this leverage.
PBMs drive down the cost of the medication. Don’t be fooled – the PBM is making money. They get paid when the patient uses their service. But the patient is getting access to a price they could not get without the PBM.
Beyond pricing, PBMs identify overutilization and drug interactions on prescriptions filled for the same patient by different pharmacies that can not be detected by stand-alone pharmacy computer systems. Without the PBM, patients could be taking medications that have serious drug interactions. Payers could be paying for unnecessary prescriptions or fraudulently submitted claims.
PBMs have helped to make drug therapies available that would never have been possible without the buying power and efficiencies that they bring to the system. The efficiency and buying power of the PBMs have led to tremendous growth in drug utilization and improved the health and lives of countless individuals.
Not All PBMs Are Equal
However, while PBMs can and sometimes do help to deliver quality care at the most economical price, the complexities and incentives mentioned before often result in the client overpaying for the prescription drug benefit. When clients overpay and budgets are stressed, the natural result is for some reduction in benefit to the member – either reduced coverage or increased member contributions.
Many think that government regulation and oversight can fix the problems with the PBMs. While this has some potential, history shows us that the government trying to regulate complex industries seldom produces the desired outcome. Look to the waste and abuse in the defense industry or the problems with regulating the financial sector. The players in markets like this are savvy, well funded and connected. They will always be a step ahead of government regulations.
Align Incentives with the Right PBM
There are some simple effective ways for payers to protect themselves against predatory practices of some PBMs. There are many capable, competitive options available to the status quo. Payers simply need to ask a few basic questions that will quickly expose what the PBM’s incentives are and whether or not they have incentives that may limit their ability to work in the client’s best interest.
Here are five questions everyone should ask their PBM.
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- Are pharmacies paid the same amount that you bill your clients?
- Do you keep any of the funds that are generated from pharmaceutical manufacturers?
- Do you have any ownership in the prescription distribution system?
- Do you have any ownership in the rebate aggregator?
- Does your ownership include private equity investors?
To find out why these questions are important and what the PBM’s answers may tell you about their business model, give us a call.
