Employer Clinic, Employer Health Benefits

RxStewardship: H is for Hidden Costs

Week 11 – R X S T E W A R D S H I P


Have you ever been surprised when looking at an itemized bill from your phone carrier? In a recent review of my own bill, I counted nine separate costs in addition to the charge for the actual service. Some of the line items, including the 9-1-1 Service Fee, are easily understood. Other items, including a nebulous “Administrative Fee”, are not as clear. What is included in this amount? What value am I receiving?

Unfortunately, this phenomenon is fairly common. Think about your last hotel bill. Or your most recent vehicle purchase. Title costs, dealer prep, documentation fees….even a wheel tax! However, while these costs may not have been included in the advertised price, they were likely clearly articulated on your bill. When it comes to pharmacy benefits, that isn’t always the case. Some costs are harder to discern for all but the most savvy.

A trusted advisor can be very helpful in trying to find and quantify these hidden costs. To assist you in this effort, please find below areas where hidden costs can typically be found.    

Classification of medications as brand, generic or specialty –

On the surface it may seem as though this is a simple determination but when a generic medication is categorized as a specialty medication, the result is a dramatic increase in cost for you and your members.

Formulary –

Your formulary should favor medications that provide the best value for your organization as opposed to being set up to maximize value for others through spread pricing, rebates, and commissions.

Maximum Allowable Cost (MAC) list –

Ideally your MAC list should be transparent and updated on a regular basis.

Rebates –

Your organization should understand the methodology utilized to calculate rebates earned and should have the ability to be audited.   If your organization does not receive rebates, there should be quantifiable cost offsets in place.

Administrative Fees –

There should be clarity on exactly what services your organization is receiving in return for administrative fees.

Prior Authorization Management –

You should understand the value your organization is deriving from the prior authorization process including metrics for the volume of reviews conducted, denial and appeals rates and adherence to medication regimens that are suggested as part of the prior authorization process.

Pricing –

Your organization should have a good understanding of how ingredient cost reimbursement is determined, as well as the total cost of providing a medication to a patient. This includes administrative fees, dispensing fees,

Pricing is an area that we would like to expound upon as it is often a treasure trove for hidden costs. It is common to simply examine the ingredient cost of a medication when completing an analysis of costs. However, a more accurate review would also examine pharmacy dispensing fees and administrative fees including those assessed by your PBM, TPA or others.

The information included in the graphic below was pulled from Northwind’s claims repository and depicts differences in ingredient costs, administrative fees and dispensing fees using a traditional PBM model as compared to Northwind’s transparent cost-plus model.

If you would like to learn more about helping your organization understand hidden costs, maximize financial efficiency and avoid fees that do not provide value – let’s have a conversation!

Schedule a free claims analysis now.

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