Working Toward Better Value in Prescription Drug Benefits Management

AJPB® Translating Evidence-Based Research Into Value-Based Decisions®November/December 2017
Volume 9
Issue 6

Many healthcare stakeholders are concerned that pharmacy benefit managers use perverse incentives that work against healthcare goals, such as improved outcomes and lower costs.

More than 56% of US employers offer healthcare insurance for their employees, providing a vital link to important care through the design of their healthcare benefits. How employers design benefits, select their vendors, and manage their contracts affects the breadth and costs of health coverage offered to employees. Employers rely heavily on their consultants for these important tasks, particularly when it comes to pharmacy benefits management.

Yet the roles of pharmacy benefit managers (PBMs) and their business models have been under increased scrutiny in recent months. The prevailing PBM approach is perceived by many healthcare stakeholders as overly complex and opaque, setting up perverse incentives that work against healthcare goals such as improving outcomes and lowering costs. These perceptions have attracted attention in the press, where PBMs, biopharmaceutical companies, and other stakeholders are engaging in finger-pointing about which group is responsible for high drug prices.

We wanted to better understand some of the underlying challenges that employers are facing to encourage a constructive dialogue among healthcare stakeholders. To do so, we engaged Benfield, a division of Gallagher Benefit Services, to conduct research that assesses employer experiences and perspectives on PBMs so that we can move toward a more fully value-focused approach to pharmacy benefits management.

As part of this research, Benfield surveyed 88 jumbo employers—those with more than 5000 employees—and learned that there is often a disconnect between the important role employers believe their PBMs play in helping to manage prescription drug benefits and their perceptions of PBM vendor goal alignment, trust, and service satisfaction. The findings indicated that this disconnect is rooted in employer concerns about transparency, contract complexity, rebates, and focus on value.

In particular, employers who participated in pre- and post-survey interviews noted that they have several important objectives for alleviating these concerns and improving the value of their prescription drug benefits on behalf of their employees. They want to:

  • Improve transparency around pricing, rebates, and discounts. For many employers, receiving rebates from their PBMs creates a revenue stream that companies’ benefits departments count on to offset rising costs. Focusing too strongly on rebates can be a distraction to employers, taking attention away from other factors that affect the value they get for the money spent on providing prescription drug benefits to their employees. These important factors include ensuring employees have access to the most effective medicines, making sure employees are not bearing a disproportionate cost share because their coinsurance or deductible payments are based on pre-rebate prices, and supporting broader goals related to employee health, productivity, and satisfaction. Ideally, employers are interested in replacing rebates with discounts or using point-of-sale rebates, in which patient payments reflect a post-rebate price.

  • Simplify contracts and provide clear definitions to remove ambiguity. Employers surveyed said they are confused and intimidated by the sheer complexity of the current PBM models and ambiguously worded contracts. They are unclear about how PBMs make money from the services provided to their organizations and do not fully comprehend the details of their contracts.

  • Provide full disclosure of the rationale behind formulary and exclusion list decisions, such as the clinical, financial, and economic impacts. Employers want to ensure that the decisions are being made in the best interest of their employee populations. Value-based contracts—in which payments are based on how effective a medicine works for a particular population—could become more common, as well as the use of value-based insurance design, in which patients pay less for high-value drugs.

In the future, employers are expecting to have more transparency in how rebates or transactions are handled by PBMs and will need to develop a strong mix of in-house and/or external consulting expertise in pharmacy benefits and contracting.

To have a sustainable marketplace that rewards value and innovation, employers need to get strong value in return for the money they spend on prescription drug benefits. Starting a dialogue and becoming more engaged in their management of the prescription drug benefits are important steps employers can take in meeting those goals.

Toward that end, we have developed tools that employers can use to perform self-assessments, recognize the ambiguous terminology used in contracts, and engage more effectively with consultants or advisers on pharmacy benefit issues. These tools, available on our website at, can provide employers with actionable steps they can take to become more engaged and actively drive toward the goal of better value for money spent on prescription drug benefits.

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