Description of strategies that employers can consider to better manage their PBM relationship to optimize their pharmacy benefit costs.
Employee prescription drug plans are receiving increasing scrutiny due to the projections for significant increases in costs over the next several years.1 Causes include the decreasing impact of patent expirations, increased utilization, and the introduction of expensive specialty drugs. Over the past decade, prescription drug expenditures have grown faster than any other healthcare category and make up an increasing percentage of per capita health spending.2 The Segal Health Plan Cost Trend Survey projected prescription drug plan benefit cost increases of more than 7.5% for 2015—more than twice the rate of medical plan costs.1,3
The drivers of increased pharmacy benefit costs are generally recognized as: 1) increased utilization, 2) drug price increases, 3) introduction of new drugs and expanded indications, and 4) growth in the specialty drug sector.1,4,5 The main drivers of the projected cost increases specifically in the next year are the introduction of new and expensive specialty drugs, as well as price increases for both brand name and generic medications. While specialty drugs generally make up 1% to 3% of all prescriptions, they account for over 25% of total prescription drug costs.5,6 Furthermore, spending for specialty drugs is expected to rise at a rate of 15% to 20% per year for the next several years.6,7 These forces are causing employers to examine methods and strategies for controlling the rising costs of providing prescription drug benefits to employees.
One key strategy to controlling prescription drug benefit costs is to understand and better manage the relationship with the pharmacy benefit manager (PBM). Given the complexity of prescription drug benefit programs, it is an attractive option to simply turn over management of the employee prescription drug benefit to a PBM using standard clinical and plan designs. However, it is important to realize that while they are serving clients’ needs, PBMs are also in business to make a profit. Therefore, the actions that they take may not always be in the best interest of an employer.8 For that reason and others, employers are increasingly attempting to better understand the prescription drug benefit in order to develop new strategies to control costs and to maintain an affordable, quality drug plan for their employees. Organizations that have internal expertise in medicine and pharmacy, such as health systems and some colleges and universities, may be in an excellent position to assume greater management of their prescription drug benefit.
Understanding the PBM Financial Model
An initial step in achieving better prescription drug benefit performance is more thoroughly understanding how PBMs generate profits.9 With such understanding of this model, employers are better positioned to negotiate a more favorable relationship with their PBM and to address how to best align strategies between the employer (as payer) and the PBM.
Generally, PBMs generate revenue through the following strategies10-12
Improving the Nature of the Relationship With the PBM
When the employer understands the sources of revenue for a PBM, the employer is in a better position to manage the PBM relationship and to negotiate contracts that maximize the value in the prescription drug benefit. This is particularly true for employers who have internal expertise in medicine and pharmacy, such as health system employers or academic institutions that have schools of medicine, pharmacy, and/or public health. Mobilizing internal expertise, along with having human resources personnel develop a more sophisticated understanding of the complexities of the prescription drug benefit, can lead to more effective management of the overall benefit. This will help to ensure appropriate dispensing and payments, and by extension, control plan cost.
Strategies to accomplish this include:
While there are significant benefits to taking more internal responsibility for the prescription benefit plan, several challenges need to be considered as well. To start, there will be more administrative complexity, and additional resources will be needed in order to manage the program. Generally, however, the substantial savings that can be achieved will more than compensate for the added complexity and incremental resource costs. Use of a national pharmacy consultant is instrumental in the support of plan sponsors. Typically, such a consultant benchmarks data and best practices, validates employer patterns of use and cost, and models financial and utilization programs when plan design changes are being considered and a strong business case is needed. If an agreement with a PBM is structured such that transparency increases around differential discount pricing strategies, the result might be an increase in administrative fees charged to the plan. Examples of the functional responsibilities that should be considered when taking ownership of the employee prescription drug plan are illustrated in the
Secondly, effective communication with employees is necessary to gain their support and cooperation, and for them to take “ownership” of the plan’s goals. Given that this effort is being made to preserve a high-value benefit for the employees, this communication effort should be positively received.
A further challenge is the difficulty in coordinating data from medical plans with those of the prescription drug plan to aid in decision making—and that can be significant whether the employer decides to let the PBM run the program or chooses to play a more active role.
Finally, employees may also have privacy concerns, chief among them the fear that other employees in the organization will have access to their protected health information in the course of operating the benefit plan. Such concerns can be addressed through the establishment of policies that protect the employees’ privacy.
Finally, regardless of the degree of self-management of the prescription drug benefit that an organization decides to assume, there are still opportunities to develop more favorable agreements with PBMs that enhance transparency, improve alignment of objectives, and help to achieve the plan’s goals.
The growth in prescription drug spending, especially with the emergence and importance of specialty pharmaceuticals, will bring increasing emphasis on managing the prescription drug benefit. Employers should become informed consumers, understanding how revenue is generated by pharmacies as well as by intermediaries such as PBMs. Organizations like health systems and academic institutions who have internal expertise or internal pharmacies may be able to take advantage of opportunities to assume more management responsibility for the prescription drug benefit, working in a collaborative and more transparent manner with other stakeholders. Those employers without internal expertise may still benefit through a greater understanding of the pharmaceutical supply chain and consulting assistance in negotiating mutually beneficial arrangements with PBMs and other stakeholders.