Employer Health Benefits

The Hidden Problem (and Opportunity) with PBMs

Pharmacy Benefit Managers (PBMs) have taken a beating over practices that continue to leave a really bad taste in the mouths of many self-funded employers. For anyone following the headlines, the issues have become familiar:

  1. – Spread pricing
  2. – Withholding hidden manufacturer rebates
  3. – Withholding data
  4. – Layers and layers of hidden administrative fees
  5. – Care restriction through painful prior authorization processes
  6. – Hidden commissions
  7. – Profiteering through formularies that maximize retained rebates and encourage higher profit drugs
  8. – Little to no effort to reduce drug consumption or increase efficacy

Not only are these problems expensive, but they remain unresolved even as awareness of them expands. The system causing and sustaining them is a tough nut to crack.

A Wave of New PBMs

A new wave of PBMs has appeared on the scene seeking to right the wrongs of many of the above issues. This new class of PBM typically describes itself as a “fiduciary” or “transparent” pharmacy benefit manager to convey a higher sense of responsibility to the employer. In this new order, the “good guys” typically offer transparency relative to rebates and eliminate spread pricing games. The other items on the “bad guy” list above may or may not be addressed depending on the particular PBM. However, the list is a good place to start for anyone wanting to discern their own best path forward with their pharmacy benefit.

Despite efforts to address the wrongs of traditional pharmacy benefit managers, the biggest players still control the vast majority of the market, typically estimated at 80% market share for the three largest PBMs. Many reasons exist for this: fear of change, lobbying efforts, and consolidation to name a few. The biggest reason may be the huge financial ecosystems that have grown up around these massive organizations which incentivize benefits advisors, consultants, and third party administrators to keep the big three in place.

This post isn’t about the well-documented problems with the traditional PBM model or the misalignment that occurs due to their huge financial ecosystems. There is actually an even more profound problem with the PBM model (traditional or transparent) in the United States and it is a massive, missed opportunity.

The Hidden Problem

Pharmacy benefits today centers on managing the costs of medications and patient access to those medications. The levers the PBMs use to manage access and cost are broad, blunt, and arms-length. What that means is that most of today’s pharmacy benefit managers use industrial scale systems and processes to push money around and charge self-funded employers for the privilege of their employees accessing needed medications, administering those transactions, and possibly restricting access to certain medications based on the contract.

For a typical self-funded employer, drug claims amount to 25%-30% of their overall healthcare spend. The other 70%-75% of an employer’s healthcare spend falls into the medical bucket, distinct from the drug bucket. For self-funded employers, the drug plan and the health plan are distinct and separate decisions. After all, what does my drug plan have to do with my medical plan? Actually, a lot.

The hidden problem with PBMs is that they are doing little to nothing to impact the much larger portion of healthcare spend. Wait, are they supposed to? As they are currently designed, perhaps not. But what if they could? What if the money we spend on our drug plan for employees could actually be used to influence better health outcomes and lower our overall spend?

The Hidden Opportunity

Today’s pharmacy benefit managers are not integrated with the care our employees are receiving. They set formularies, they set prices, and they may help with identifying negative trends or cost saving opportunities but they are still sitting far away from the point of care.

The medical providers serving your employees have zero visibility on the drug plan you use. They have zero visibility on the formulary, drug costs, or compliance data. They operate in a silo separate from your drug benefit. And, to a large degree, so do your employees. Patients are blissfully unaware of carve outs, restricted formularies, and prior authorization processes until the moment they encounter them after a visit with their medical provider and attempt to get their prescription filled.

What if medical staff could see the analytical data you see from your drug plan? What if they could help target high-risk populations and leverage your drug spend to improve engagement such that they could help them better manage their chronic disease? What if the employer could see this activity in real-time and track costs and efficacy of their efforts (and investment)?

Pharmacy Benefits as a Lever of Influence

Your pharmacy benefit can actually be a lever to pull to help influence the health of your employees. This approach isn’t Pharmacy Benefit Management, it is just better stewardship of your spend. Stewardship focused on managing healthcare costs like an investment. The happy side effect of the stewardship approach? It lowers cost while improving health.

How does it work? Take your current drug spend, reduce it by 15%-20%, and direct it toward a point of medical influence by providing prescriptions and supplies at no cost for employees who engage with structured programs to help them manage disease or improve their health. The best care for your employees, the best approach for your employees, isn’t delivered through access-reducing, cost-increasing, results-obfuscating, silos. You get the best costs and outcomes by stewarding your drug investment toward points of influence and engaging employees one at a time with customized healthcare centered on their particular situation.

There is a way to do this. How do I know? Because we’re doing it. You can turn 25%-30% of your medical spend, your current drug spend, into an investment focused on reducing big medical costs and helping your high-risk employees live better, healthier, lives. We call it Strategic Rx Stewardship.

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