Drug Plan Sponsors and Pharmacy Benefit Managers Need to Safeguard Transparency

AJPB® Translating Evidence-Based Research Into Value-Based Decisions®April 2010
Volume 2
Issue 2

Identifying solutions to preserve the current transparency and take it to the next level is imperative for success.

Transparency is an important, far-reaching idea that extends well beyond our drug benefit industry. It’s a societal construct that took hold long before President Barack Obama was elected. “In the twenty-first century, transparency and trust have become critical to the operation of organizations and economies, for economic, technological, social, and sociopolitical reasons,” write business strategists Don Tapscott and David Ticoll in The Naked Corporation.1

Our industry is comprised of many players to ensure each patient gets the right drug at the right time. The Figure illustrates the direct relationships among the stakeholders involved in the delivery of drug benefit programs. Interestingly, the only relationship that has any degree of transparency is that among drug plan sponsors and their pharmacy benefit managers (PBMs).

Transparency in contracting between PBMs and plan sponsors started to take hold in late 2004 when the HR Policy Association (www.hrpolicy.org) created a pharmaceutical coalition for drug purchasing with transparency requirements. This employer-led and employer-supported coalition helped to encourage PBMs of all sizes and types to offer more choice in pricing models to supplement the industry’s long-standing fee-per-claim approach. Several PBMs—including Envision Pharmaceutical Services, Innoviant (now owned by Prescription Solutions), and Navitus Health Solutions—were founded on fully transparent, pass-through contracting arrangements.


In response to the market’s growing interest in transparency, the Pharmacy Benefit Management Institute (PBMI) developed new survey questions to track employers’ satisfaction with transparency in their PBM relationships in 2006. PBMI began measuring US employer satisfaction with the PBMs in 1995.

Research results for the past 4 years document that transparency of the employer—PBM business relationship has the greatest correlation to an employer’s overall satisfaction with its PBM. A total of 77.9% of the 358 US employer respondents participating in PBMI’s 2009 study who described the degree of transparency of their financial relationship with their PBM as “completely transparent” or “somewhat transparent” rated their PBMs higher than those who described the relationship as “not transparent.”

PBMI data document the way that employers’ level of satisfaction with financial transparency is correlated with their service ratings of PBM performance. In 2009, the 26.6% of employers who were “extremely satisfied” with the level of financial transparency gave their PBMs significantly higher ratings on the majority of the measured service functions than those employers who were less satisfied. The Table illustrates the impact of financial transparency on overall satisfaction measures.


The time for meaningful industry dialogue about pharmacy reimbursement and drug pricing is here. With the resolution of the lawsuits on drug-pricing markups, average wholesale price data for prescription drugs are not likely to be published after September 2011. A different benchmark will be needed.

Simply changing the drug price benchmark does not create a more accurate and valid system of pricing drugs. All of the uncertainty about drug pricing sets the stage for an erosion of the transparency that currently exists among drug plan sponsors and PBMs.

Pharmacy reimbursement and third-party drug claim pricing are complex issues. Plan sponsors want to understand more about how drug pricing, reimbursement, and PBM revenues are calculated. In keeping with a greater emphasis on transparency in the global economy, drug benefit plan sponsors must demand transparency in newly emerging drug-pricing methodologies.

It is important for plan sponsors to advocate for a system that is transparent, rational, and intelligible. Product reimbursement should approximate average acquisition costs. Pharmacy dispensing fees should provide fair compensation for services provided to patients. The system should include incentives for providers and pharmacies to manage drug therapies in a cost-effective manner.

The ideal price benchmark should be:

  • Accurate and reliable.
  • Clearly defined operationally.
  • Based on the simplest methodology possible to yield meaningful values.
  • A reasonable estimation of average acquisition cost.
  • Sensitive to class of trade issues in pharmacy industry.
  • Updated and reported on a timely basis.
  • Verifiable and auditable.

Systemic change will take time, and implementation will be challenging. Throughout 2009, the market invested time in updating third-party contracts (payer—PBM, PBM–pharmacy, manufacturer rebate agreements). The actual rollback of the markup of wholesale acquisition cost from 1.25 to 1.20 on about 1400 prescription drugs proved—much like January 1, 2000—to be anticlimactic. At the time this manuscript was submitted for publication, a group of industry stakeholders (associations, consultants, pharmacists, PBMs, pharmaceutical manufacturers, and plan sponsors) agreed to work together under the direction of the board of directors of the National Council of Prescription Drug Programs to author a document calling the industry to action on the issue.


Stakeholders in the drug benefit industry have begun working together to address the current drug-pricing issues. Identifying solutions that preserve the current, hardearned degree of transparency and take that transparency to the next level is imperative for success.

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