A recent study by PWC found prescription drug plans typically comprise between 18 – 25 percent of an employer’s total healthcare spend. What’s more, it’s not uncommon for some employers to spend as much as 30 percent of their overall benefit costs on their prescription drug plan. These exorbitant prices are a significant reason total medical costs are set to rise in the U.S. in 2020 for the first time in three years.
So, as an employer, what can you do to address these excessive prescriptions drug costs? Well, one of the most common strategies is to partner with a Pharmacy Benefit Manager (PBM). But recently these PBMs have been in the news for having misaligned incentives and not actually helping to reduce the prescription drug expenses as much as they claim.
In this article, we’ll tell you what a Pharmacy Benefit Manager is and how they can help your company and employees address the rising cost of Rx drugs. Plus, we’ll tell you about a new type of PBM that’s gaining popularity and how it differs from a traditional pharmacy benefits manager.
What’s a Pharmacy Benefit Manager?
A pharmacy benefit manager, per the National Academy for State Health Policy, contracts with a health plan to administer that plan’s pharmacy benefits. A PBM can carry out several actions to help an employer reduce their Rx spend. Some of these actions include:
- Setting up a health plan’s pharmacy network to supply drugs and services to members
- Designing the health plan’s formulary – the plan’s list of covered prescription drugs that can include multiple tiers with varying copays that act as financial incentives to drive consumers to preferred drugs
- Establishing how much health plan members pay out-of-pocket (Copays) for prescription drugs
- Paying pharmacy claims, which the health plan reimburses
PBMs don’t buy drugs directly from manufacturers. But when they create drug formularies for their health plan clients, they designate which “preferred” drugs the insurance plan will cover, which gives the plan a significant bargaining position. Because, if a drug isn’t on a plan’s formulary insurers won’t cover it and physicians won’t prescribe it.
These formularies allow PBMs to insist on discounts or rebates from manufacturers in exchange for placement on the formulary. Typically, the rebates gained from these negotiations are based on the volume of drugs dispensed to the PBM’s health plan enrollees. But how much of these rebates are shared with individual consumers remains a point of contention.
What’s a Fiduciary Pharmacy Benefit Manager?
A fiduciary, or “fee-only financial adviser,” pharmacy benefit manager has emerged in response to those searching for additional transparency in their pharmacy benefit manager. Being a fiduciary requires a PBM to act first in its client’s best interest. Under the fiduciary model, contracts negotiated between PBMs, clients, and pharmacies are designed to maximize both understanding and transparency of your drug plan.
Essentially, any contract negotiated by a fiduciary PBM is meant to encourage the best possible health and financial outcomes for the clients, their clients, the enrollees, and the patients. The point of a fee-only fiduciary model is to reduce the conflicts of interests that can arise within the traditional PBM model.
There’s no additional margin gained from favorable tier placement for high cost/revenue drugs. Coverage and pricing considerations are restricted only to the cost-benefit of the therapy itself. Any profits from this model come exclusively from 100 percent disclosed administration fees.
How Can a Fiduciary PBM Help Your Organization and Employees?
There is a multitude of benefits a pharmacy benefit manager can deliver to both your organization and your employees. Here are the top five benefits a fiduciary PBM can provide to you and your staff.
1. Improved Transparency
One of the most significant advantages to partnering with a fiduciary PBM is improved transparency. As previously mentioned, the incentives for non-fiduciary PBMs can result in conflicts of interest between the PBM and their client. Because a PBM is paid through rebates by the manufacturer, individual enrollees may not see any significant savings.
These rebates aren’t discounts passed on to consumers at the point of service. Instead, PBMs will share a certain percentage of their rebates with their health plan clients. Some portion of the rebates do help lower the net cost of drugs in the health plan, but typically the exact amount isn’t disclosed to consumers.
Similarly, the rebates a PBM receives from manufacturers are based on a percentage of the drug’s price. So, the higher the drug’s price, the more significant the rebate amount. This scenario generates more net revenue for the PBM but can raise costs for health plans, pharmacies, and consumers.
But a fiduciary PBM doesn’t gain additional revenue from favorable tier placement for higher-cost drugs. Similarly, a fiduciary PBM makes their money only through disclosed administration fees rather than rebates from drug manufacturers. This pay structure gives the employer and their staff more transparency in their PBM and drug plan.
2. Manage Specialty Drugs
Another vital advantage of a fiduciary PBM is improved management of specialty prescription drugs. Willis Towers Watson’s Rx Collaborative, recently disclosed 40 percent of its total drug costs were spent on specialty drugs. Despite the fact, these specialty drugs accounted for less than one percent of total prescriptions in 2018. Additionally, the top 10 drugs by cost made up 1/5th of its pharmacy spend from 2018.
Specialty drugs have an enormous impact on your health plans drug spend, and it’s not just limited to large companies like Willis Towers Watson. Per research from the Employee Benefit Research Institute, specialty drugs accounted for as much as 36 percent of all drug costs in 2018.
Despite their low prescription rate, the prices of these specialty drugs can be exorbitant. Furthermore, these specialty drugs are often unnecessary or overpriced. For example, one brand-name drug Duexis is the equivalent of two over-the-counter drugs, Pepcid AC and ibuprofen. These two, when purchased over the counter, cost a combined $30 a month. Duexis, on the other hand, costs $1,954 per month.
A specialty drug like Duexis is far less cost-efficient than just buying the two over the counter drugs separately. But misaligned incentives push PBMs to include such combination, high-cost, low-value medications in their formularies. A fiduciary PBM eliminates the misaligned incentives that promote typical PBMs to include these cost-inefficient drugs in your Rx plan.
3. Overall Healthcare Costs
As we mentioned at the top, prescription drug plans can make up anywhere from 18 – 30 percent of an employer’s total healthcare spend. And throughout the past decade, prescription Rx costs have only risen. Last year, prescription drug spending increased by 3.3 percent over 2017. This year, drug spending in the U.S. is projected to increase by 2.5 percent. These percentages seem small, but comprise millions of dollars.
Any employer looking to reduce their overall healthcare costs must attempt to lower their prescription drug spend. Utilizing a fiduciary PBM, combined with other cost-saving strategies such as a medical management provider, can help to reduce a firm’s healthcare costs. According to Kent Thomas, cofounder of Pharmatrix, clients regularly see 18 – 20 percent cost savings when they implement a fiduciary PBM.
Everyone from your neighbor to our president seems to have an opinion about how our country can reduce the amount we spend prescriptions drugs. But as an employer, you don’t need to wait for any of these external forces to reduce your Rx drug spend. We prescribe partnering with a fiduciary pharmacy benefit manager to lower your prescription drug costs.