More Companies Relying on PBMs

As HR leaders increase their use of pharmacy-benefit managers, they need to ensure that their organizations use best practices when selecting and managing PBM contracts. Of special importance are insights into transparency and integration of healthcare-related services.

Monday, July 11, 2011
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As pharmacy-benefit managers compete for their business, HR leaders can afford to be aggressive in negotiating their drug-benefit contracts.

Nearly six in 10 employers, or 57 percent, now use third-party PBMs to process and pay for prescription drugs -- a jump of 10 percent from 2009, according to a recent nationwide survey of 224 organizations conducted by Buck Consultants, an HR and benefits consulting firm. Another 11 percent are planning to sign up.

Pricing is the main reason to sign with a PBM, according to about two-thirds (67 percent) of respondents, followed by customer service at 65 percent. Sixty-seven percent said that pharmacy costs account for 16 percent or more of their total healthcare costs, up from 57 percent in a survey done last year.

The marketplace for PBMs has become "hyper-competitive," says Kevin Murphy, who manages the eastern region pharmacy practice for Mercer in Norwalk, Conn.

And that's good for employers, says Michael Jacobs, national clinical practice leader at Buck Consultants in Atlanta.

"Strong competition among PBMs for employer business has created a buyer's market for PBM pricing, and we expect this competition will intensify as healthcare reform is implemented," he says. "Therefore, employers can be aggressive in their negotiations with PBMs."

According to the Buck survey, the three most common drug-management initiatives in use today are "formularies," or lists of drugs approved for reimbursement (90 percent); utilization-management programs, which monitor drug use and advise physicians on the most cost-effective prescriptions (78 percent); and drug plans that offer different tiers of co-payments, from generics to name-brands to specialty drugs (77 percent).

Selection and Management

As more HR leaders sign on with PBMs, they are advised to develop best practices for selectining them and managing their contracts.

"When selecting a PBM, find one that'll give you access to all the information you'll need to help make decisions to create benefits for your employees," Jacobs says. "Some PBMs don't give all [the information].

"A PBM has to be flexible to meet your needs. ... A one-size solution may not be right for you," he says, noting that an organization may want to set up a plan for retirees or provide a 90-day retail pharmacy benefit.

"[T]he most important considerations can vary, dependent on the unique needs and resources of each employer," says Kim Staloch, a pharmacist and chief operating officer of Pharmaceutical Strategies Group in Plano, Texas.

She suggests looking at a PBM's data capabilities and whether it has experienced client-service teams that are familiar with your market, uses strong quality control measures and tools, and demonstrates capabilities in core services such as claims processing, mail services, specialty pharmacy and Medicare programs.

And keep shopping around for the best price, even after you've signed the contract, experts recommend.

Most PBM contracts are for three years, Jacobs says. But you might want to arrange for a "price check" in the second year, so you can "renegotiate the price to get a better deal."

Murphy says more than eight of 10 prescriptions will be generic after 2015, so "make sure you're getting the most aggressive generic pricing. If you haven't gone out to bid in the last three years, you're making a mistake. ... You're not getting the best offer you can."

He also suggests making sure the PBM offers the option of smaller-sized retail-pharmacy networks, which is a growing trend. "Plan sponsors need to look at, 'Do they need 60,000 pharmacies in the network?' "

In addition to comparing prices, HR leaders should also keep a close eye on the PBM's utilization program.

"All PBMs can check the box," Staloch says, "that they provide utilization management services [such as prior authorization, step therapy, etc.]. You need to understand the details of the programs that your plan will have access to, whether there is any flexibility in the design of these programs, how they manage/update these programs to maintain strong results, and that the cost of these services is competitive."

In the future, Murphy says, PBMs can be even more helpful by integrating drug benefits and medical claims by different vendors.

Right now, he says, we have a "silo" approach to healthcare when medical care and prescriptions are provided by more than one vendor. He gives the example of a teenager who is treated by a psychiatrist for depression, while also being treated by her primary physician, who prescribes an acne medication that increases depression.

"Best practice among plan sponsors is to force an integration among pharmacies, medical [practitioners and other healthcare providers] to bring all vendors together," says Murphy. "Best practice is the ability of the PBM to take medical claims and lab values [and] apply them to the management of pharmacy benefits."

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Transparency has become a buzzword when it comes to pharmacy-benefit management, and HR leaders are advised to require as much transparency as they can in their contracts, especially when it comes to discounts and rebates.

"Transparency in the PBM industry has a lot of different permutations," Jacobs says. One type of PBM contract is a "pass through," which means that the sponsor pays whatever price the PBM pays to the retailer. The PBM's profit comes mostly from administrative fees per prescription.

HR can also demand the right to audit all records relating to what PBMs pay. That can include pharmacy-network contracts, the clinical-management program, operational records such as call-center costs and records with the pharmaceutical companies. You can also comb through all invoices you get from the PBM.

"Every drug has a national drug code. [You can] check it against a national data base to verify pricing," Jacobs says.

"You need to audit claims and rebates," Murphy says. "If you make a significant change in benefits, you need to audit. ... I'm amazed how little organizations are getting audits."

Staloch adds: "You should have a clear understanding of the revenue model of your vendor. All dollars that are collected from manufacturers in any form should be addressed and defined in the contract."

Specialty Drugs

One of the biggest appeals of PBMs is their ability to lower the cost of "specialty" medications, which treat illnesses such as multiple sclerosis, hepatitis C and cancer. While specialty drugs represent 0.5 percent to 1 percent of prescriptions, they represent 15 percent to 20 percent of the client's cost, says Murphy.

And their use is growing: Of some 620 drugs in the "pipeline," half are specialty medications, which can cost thousands of dollars a month.

"Specialty drugs," Jacobs says, "will be the major driver of pharmacy-cost increases over the next three to five years. We anticipate specialty drugs will represent upwards of 30 percent of drug costs within the next three or four years."

Most PBMs have a relationship with specialty-drug providers, or even own the special provider, he adds.

"Most of the larger PBMs have acquired specialty pharmacies," Staloch says. "As the dollars spent in the specialty-pharmacy channel continue to grow, payers need to ensure their specialty vendor can provide the member management and clinical expertise to help payers ensure these high-cost products are appropriately used." 

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