Pharmacy Benefit Management Tools Could Save Billions Over the Next Decade

Using PBM tools at current levels can save payers $654 billion over the next 10 years.

Pharmacy benefit managers (PBMs) have been the target of scrutiny lately, in the media and even in proposed legislation. Detractors have called for more transparency for PBMs, accusing them of passing unnecessary drug costs along to plan sponsors and beneficiaries.

To educate the public about the significant cost savings PBMs actually produce for plan sponsors and patients, the Pharmaceutical Care Management Association (PCMA) recently launched a national ad campaign.

"This campaign is focused on educating policymakers and opinion leaders on how PBMs reduce costs, expand access and improve the quality of prescription drug benefits for more than 266 million Americans," said PCMA President and CEO Mark Merritt.

To inform this campaign, PCMA commissioned Visante, a healthcare consulting firm, to research and report on current and projected savings produced by PBM tools in the United States. Their findings were substantial.

Visante estimated that today’s average level of PBM tool utilization yields a 10% to 20% cost savings for payers, and that a higher level of use could save payers an additional 10%.

How Do PBM Tools Work?

According to Visante’s January 2016 report, the tools used by PBMs to improve patient access to prescription drugs and reduce costs work in 6 primary ways.

  • Negotiating rebates from drug manufacturers: When therapeutically similar drugs compete for the same indication, PBMs negotiate a manufacturer rebate for a plan’s “preferred” option, giving that product a lower copay than its competitors.
  • Negotiating discounts from drugstores: PBMs negotiate dispensing discounts from retail pharmacies, enabling the drugstore to gain business by joining the plan’s pharmacy network.
  • Offering more affordable pharmacy channels: PBMs make mail-order and specialty pharmacy fulfillment services available to plan members, often at deep discounts compared with retail brick-and-mortar stores.
  • Encouraging use of generics and affordable brands: To encourage cost-effective prescription use, PBMs employ formularies and tiered cost sharing, prior authorization and step-therapy protocols, generic incentives, consumer education, and physician outreach.
  • Reducing waste and improving medication adherence: PBMs use Drug Utilization Review to reduce waste and patient risk, such as polypharmacy, and implement patient adherence programs to help patients stick to their prescription regimens. “Both programs improve clinical outcomes and influence prescription volume and expenditures,” the report stated.
  • Managing high-cost specialty medications: PBMs employ specialty pharmacies to properly and safely store, handle, and deliver complex, often injectable, medications that can cost thousands of dollars per dose. Specialty pharmacies have unique capacity to provide specialized patient education, monitoring, and support for complex conditions like hepatitis C, multiple sclerosis, and cancer.

Plan sponsors decide to what extent they wish to employ these tools in their drug benefit designs. In making these decisions, sponsors weigh clinical quality, cost, and member satisfaction.

Sponsors typically want to drive member satisfaction by striking a balance between ensuring access to quality care, controlling out-of-pocket costs, and minimizing change and complication for beneficiaries.

“As sophisticated purchasers, most plan sponsors use a competitive bidding process to specify their requirements and contract with the PBM that can best meet their needs,” the report authors wrote. “Independent panels of experts known as Pharmacy and Therapeutics Committees ensure that the use of PBM tools is clinically appropriate.”

The Extent of PBM Tools in Current Practice

In 2014, nearly 80% of employer-sponsored plans used 3 or more copay tiers, according to the report.

The 266 million covered lives that benefit from average levels of PBM use participate in “commercial health plans, self-insured employer plans, union plans, Medicare Part D plans, the Federal Employees Health Benefits Program, state government employee plans, managed Medicaid plans, and others,” the report said.

An additional 15 million covered lives participate in fee-for-service (FFS) state Medicaid programs that limit the use of PBM tools.

Projected PBM Savings

The report estimated that if current use of PBM tools continues unchanged from 2016 to 2025, plan sponsors and patients will save about $654 billion. This breaks down to $350 billion in savings for the commercial sector, $257 billion for Medicare Part D and its participants, and $48 billion for managed Medicaid.

Conversely, the report estimated that PBM restrictions on Medicaid FFS state plans will translate into a lost opportunity cost of $25 billion over the next decade.

Within these 10-year figures, the savings attributed to PBM specialty pharmacy tools alone would be $144 billion for commercial plans, $88 billion for Medicare Part D, and $18 billion for managed Medicaid.

Savings would increase another 10% across all sectors, or a total of $679 billion over 10 years, with higher use of PBM tools, according to the report. High use typically would involve more selective formularies with 4 or more tiers, pre-approvals and step therapy, strong mail-order incentives, preferred pharmacy options and high performance networks, and high use of specialty pharmacies.

How Could PBM Savings Impact Employment?

The report presented evidence that PBM savings have the potential to preserve tens of thousands of jobs over the next decade. Using Bureau of Labor Statistics figures for 2016, the authors estimated that every 1% spent or saved by employers on health care benefits translates into the opportunity cost of 19,000 jobs.

These calculations estimated that annual savings currently generated by PBM tools for the commercial sector equate to the cost of more than 670,000 jobs nationwide. By adopting an even higher use of PBM tools, the report estimated that another 190,000 jobs could be created in the United States.

Conversely, policy changes to restrict the use of PBM tools could lead to job losses of the same magnitude.