UpClose by Ken Dowell

The Intricate Web of Pharmacy Benefit Purchasing

Ken Dowell is a Stanton Group partner specializing in pharmacy consulting and auditing.

Pharmacy Benefit Management companies (PBMs) now control more than 70 percent of all consumer prescription drug purchases. Since these PBMs manage $100 billion worth of prescription drugs, it is essential that health plans and employers gain a clear understanding of their role in the health care benefits marketplace. A thorough understanding of the multifaceted PBM business and how the money flows in and out of the PBM is critically important when making pharmacy benefit decisions.

PBMs play an integral role in prescription drug coverage plans that utilize claims processing and program administration activities. Over time, these same PBMs have developed effective strategies and techniques for controlling costs in these plans. However due to the competitive nature of their industry, they often do not volunteer specific cost saving techniques and their outcomes. That doesn't mean these savings don't exist and that you are not entitled to full disclosure. Organizations simply need help uncovering them. In short, they need help managing their PBM.

By setting up audits and PBM management programs to oversee all of their activities, health plans and large self-funded employers are assured of getting all they bargained for. It starts with an understanding of a dizzying array of choices and buzzwords typically describing PBM services. Some of the more common strategies include:

• Pharmacy Payments and Negotiated Prices
  The standard approach for pharmacy reimbursement for dispensed prescriptions is to pay an ingredient cost amount for the drug dispensed in the prescription, plus a dispensing fee. Knowing how the ingredient cost and dispensing fee are determined will help you negotiate a better PBM contract for your organization.
  
  
• Generic Substitution
  The goal of generic substitution is to increase the use of generic drugs and have generic drugs dispensed whenever possible. As a cost control strategy, generic substitution is multi-faceted, potentially targeted to consumers, pharmacists, and physicians. Several different techniques are associated with generic substitution. Since the potential savings in drug cost for generic drugs compared to brand name drugs generally is large, employers should have a firm grasp of the strategies PBMs use to stimulate the prescribing and utilization of generics.
  
  
• Rebates - Manufacturer Price Concessions
  Rebates are among the most complicated PBM arrangements. Rebates are moneys returned by a seller to a purchaser that are delayed from the sales transaction, and can be considered a negotiated price discounting strategy targeted to drug manufacturers. You need to make sure you remove the mystery behind rebate procedures to help you reap greater savings from your PBM contract.
  
  
• Copayments and Coinsurance
  These cost sharing requirements in prescription drug programs require consumers to pay a portion of the cost of each prescription they obtain. They are targeted toward consumers in an attempt to shift some responsibility to them for the cost of their utilization, and raise their sensitivity to the cost of their utilization. Used effectively, copayment and coinsurance requirements are a component of the benefit structure for prescription drug coverage and thus can vary across health plans managed by a given PBM. The implications of copayment and coinsurance provisions vary greatly and you need to make sure they match your specific needs.
  
  
• Formularies
  A simple definition of a formulary is a list of covered or reimbursable drugs. Unfortunately, formularies tend to be very complicated and you should get appropriate counsel to help you fully appreciate the rationale and use of formularies.
  
  
• Disease Management Programs
  Disease management refers to the practice of identifying patients with specific medical conditions and providing special care and monitoring of drug use and effects. Disease management is a relatively new service offered by PBMs designed to help health outcomes.
  
  
• Mail Service Prescriptions
  Mail service pharmacies offer convenience and lower costs to consumers and are a desirable cost control strategy. Although mail-order services are widely used throughout the nation, there is limited empirical research studies on their cost and quality.
  
  
• Drug Utilization Review
  Drug utilization review (DUR) systematically evaluates drug use to identify and then intervene to correct drug use problems. Nearly all PBMs offer DUR as a service, and it is important to understand how DUR can be used to reduce your company's pharmacy benefit costs.
  

Prescription expenditures continue to increase and have been the most rapidly growing component of health care expenditures in recent years.

Staying on top of your PBMs, making sure the savings are passed on to you and your members, is the only way to get control of pharmacy trend.