Employers’ New Decision Point: Whether to Cover Expensive Weight Loss Drugs and other notes from around the interweb:

• When is a Smaller AWP Discount Better? Buyers need to be able to select a cheaper product if one is available on the market to save money. It’s common sense. The pharmaceutical business, however, is not your typical market. Many people are prevented from using cheaper biosimilars and forced to pay exorbitant prices for brand name medications because of perverse incentives. Health plans and PBMs now benefit from brand manufacturer price reductions, such as rebates, in return for securing preferred positioning on formularies and excluding cheaper biosimilars from those formularies. The modest uptake of less expensive biosimilar insulin serves as a stark illustration of these processes. As evidenced by statistics from IQVIA, several health plans have continued to favor and promote the use of an expensive brand insulin.

• The Consolidated Appropriations Act and PBM Transparency. Pharmacy Benefit Managers (PBMs) have been extending vertical integration in new and unique ways, leading to significant issues for plan sponsors and plans (referred to as “Plans” collectively). In a new and innovative approach, several large PBMs have created an additional layer between themselves and manufacturers to effectively delegate the collection of manufacturer rebates to “rebate aggregators.” Sometimes referred to as rebate GPOs, these mysterious entities include Ascent Health Services, a Switzerland-based GPO that Express Scripts launched in 2019; Zinc, a contracting entity launched by CVS Health in 2020, and Emisar Pharma Services, an Ireland-based entity recently rolled out by OptumRx. Even some of the major PBMs (i.e., the “Big Three” PBMs) sometimes contract with other PBMs’ rebate aggregators for the collection of manufacturer rebates as seen in the case of OptumRx contracting with Express Scripts for rebate aggregation for public employee plans. Worse yet, several of these entities have claimed exemption from the federal GPO Safe Harbor, resulting in a lack of transparency, and few limitations of their profitability.

• Employers’ New Decision Point: Whether to Cover Expensive Weight Loss Drugs. Thanks to buzzy results and popularity among celebrities, there’s a big spike in demand for GLP-1 drugs, such as Ozempic and Wegovy, as a tool to help people shed pounds. The injectable medications, originally prescribed for diabetes management, have also shown promising results for weight loss. That demand is creating a major decision point for employers: whether their health insurance plans should cover the pricy drugs for weight loss. “It’s a really big issue for employers,” said Dr. Jeff Levin-Scherz, M.D., population health leader at consulting firm WTW. “We’re seeing a pretty dramatic increase in the rate of the prescription of [drugs such as] Ozempic, which is only approved for diabetes but is now showing to be very effective for weight loss.” As a result, employers are thinking about how to handle coverage of the drugs, industry experts say, a decision made more difficult by competing priorities of trying to hold down rising health care costs for themselves while also retaining and wooing talent in an employee-driven job market. Covering desirable drugs for weight loss could help them with the latter.

• Report: “Specialty” Drugs are by Far the Most Expensive, but Classification Seems Arbitrary. The prescriptions with the most astonishing price tags — like cancer meds that can cost more than $20,000 a month — are usually classified as “specialty” drugs. You’d think that since they’re so costly, there would be clear criteria for putting drugs in the specialty category. But, according to a new report, you’d be wrong. The issue might seem arcane, but it’s hugely important. Specialty drugs account for only about 2% of the volume of drugs dispensed in the United States, according to industry estimates, but they also account for more than 50% of overall drug spending. The report, by data analysis firm 46Brooklyn Research, found that the three largest drug middlemen in the United States often don’t classify the same medicines as specialty. It also said that a substantial portion of the ones they do put into that category are generics — drugs that are usually no longer under patent and thus are supposed to be cheaper because multiple drugmakers can supply them.

An organization’s fundamental principles form its basis. Our ethics may support successful endeavors if they are transparent, unwavering, and carefully upheld. The underlying standards that underpin our certifications’ ideas, attitudes, and actions are called ethics. High ethical standards must be upheld at all costs if we are to serve those we are responsible for, those we are accountable to, and ourselves. While the outcomes of our service efforts will always be crucially important, ethics places a greater emphasis on the decisions we make during our professional lives. We commit to the following Statement of Ethics for the Certified Pharmacy Benefits Specialist (CPBS) Program:

Transparency

We will demand full and fair disclosure of all compensation related to pharmacy benefits management, including but not limited to direct and indirect compensation to PBMs, TPAs, brokers, and consultants.

Conflict of Interest

Profiteering is not allowed by pharmacy benefit managers (PBM) or pharmacy benefit administrators (PBA). Profiteering is the act of making or attempting to make an excessively large or unjust profit, especially unlawfully, pursuant to this statement of ethics.

Best Practices

The highest standards of pharmacy benefits management best practices, including but not limited to transparency, value-based formulary management, drug utilization management, ongoing monitoring, and cost management of specialty medications will be followed.

Member Advocacy

We will fight for the health and wellbeing of plan participants, giving them access to the drugs and services they require to effectively manage their medical conditions.

Confidentiality

In line with all relevant rules and regulations, we’ll keep any health information about plan members private.

We believe that adherence to the Statement of Ethics for the Certified Pharmacy Benefits Specialist (CPBS) Program will promote the highest standards of pharmacy benefit management and will enable us to provide plan participants with the best possible service. We are committed to ongoing education and training to ensure that we remain at the forefront of pharmacy benefit management best practices. Together, we can work to ensure that the management of pharmacy benefits serves the best interests of unions, health plans, health systems, commercial and public sector employers, and the broader healthcare system.

The Consolidated Appropriations Act and PBM Transparency and other notes from around the interweb:

• The Consolidated Appropriations Act and PBM Transparency. Pharmacy Benefit Managers (PBMs) have been extending vertical integration in new and unique ways, leading to significant issues for plan sponsors and plans (referred to as “Plans” collectively). In a new and innovative approach, several large PBMs have created an additional layer between themselves and manufacturers to effectively delegate the collection of manufacturer rebates to “rebate aggregators.” Sometimes referred to as rebate GPOs, these mysterious entities include Ascent Health Services, a Switzerland-based GPO that Express Scripts launched in 2019; Zinc, a contracting entity launched by CVS Health in 2020, and Emisar Pharma Services, an Ireland-based entity recently rolled out by OptumRx. Even some of the major PBMs (i.e., the “Big Three” PBMs) sometimes contract with other PBMs’ rebate aggregators for the collection of manufacturer rebates as seen in the case of OptumRx contracting with Express Scripts for rebate aggregation for public employee plans. Worse yet, several of these entities have claimed exemption from the federal GPO Safe Harbor, resulting in a lack of transparency, and few limitations of their profitability.

• How Payers Can Cut Through the Noise and Optimize Their PBM Partnerships. Some payers and PBMs are owned by the same parent companies, and in fact, they make up a large share of the market — something that has attracted scrutiny. The complicated relationships between these large, combined entities make it important to build a working partnership that aligns with the goals of cost-effective, high quality and accessible care. As payers work to optimize their PBM partnerships, the complexity of their agreements makes it important to increase understanding and apply best practices to ensure transparency and value. The thought of switching PBMs can be overwhelming and often immobilizes payers instead of evaluating opportunities that would drive a more sustainable sound partnership. Payers need PBMs as partners to provide core critical functions. To optimize their relationship, payers can take several key steps.

• Report: “Specialty” drugs are by far the most expensive, but classification seems arbitrary. The prescriptions with the most astonishing price tags — like cancer meds that can cost more than $20,000 a month — are usually classified as “specialty” drugs. You’d think that since they’re so costly, there would be clear criteria for putting drugs in the specialty category. But, according to a new report, you’d be wrong. The issue might seem arcane, but it’s hugely important. Specialty drugs account for only about 2% of the volume of drugs dispensed in the United States, according toq industry estimates, but they also account for more than 50% of overall drug spending. The report, by data analysis firm 46Brooklyn Research, found that the three largest drug middlemen in the United States often don’t classify the same medicines as specialty. It also said that a substantial portion of the ones they do put into that category are generics — drugs that are usually no longer under patent and thus are supposed to be cheaper because multiple drugmakers can supply them.

• The Price of the PBM. One crucial element of the US drug supply chain is the wholesaler, who purchases drugs from manufacturers using purchasing power to gain discounts that average around 16 percent, according to IQVIA data. About 92 percent of prescription drugs are distributed through the three largest pharmaceutical wholesalers, McKesson, AmerisourceBergen, and Cardinal. Wholesalers earn revenue through “forward-buying,” purchasing extra inventory at current prices to sell them in future at a revised higher price.

PBM programs typically function in two ways. They are either “carved in”, provided by the health insurance company or “carved out”, provided independent of insurance. Whether the pharmacy benefit plan is self-funded or fully insured, any employer with more than one hundred active employees should consider and investigate a carve-out strategy for their pharmacy benefits. Simply put, a PBM carve-out gives employers more control and flexibility which leads to efficiency in managing pharmacy benefits.

A carved-out program provides better cost control, transparency, information, and reporting. In a carve-in arrangement, health insurers may bundle the two programs and subsidize some of the pricing from one service with that of another. If service levels are equal or better yet costs are lower with more transparency, why choose a carve-in arrangement?

For companies with a carved-in program, there may be concerns about changing to a carved-out program due to a perception that additional time and resources will be needed, but I have seen that on a day-to-day basis, there is slight difference in having a separate PBM program. The functions are similar along with the type and quantity of calls into HR.

Over the course of a year, there are separate review meetings for companies with carved out programs, but overall, the time spent should be roughly the same as meetings taking place with carved in providers. From the employees point of view there is virtually no change besides possibly another card in their wallet. They will have continued access to the full range of services offered by a pharmacy benefit manager (PBM). In fact, many carved in programs use third party PBM companies to provide pharmacy services.

What are the Benefits of a Pharmacy Carve-out?

1.  Better Contract Terms – Carved-in plans are based on a single, pre-determined contract that does not allow a plan sponsor or its advisor to negotiate non-pricing terms critical to managing cost trends. For example, carved-in Rx plans seldom have audit rights and, if they do, they are frequently toothless. Detailed clinical programs are also usually missing. Conversely, a carved-out PBM contract, if correctly negotiated by the plan sponsor or an advisor specializing in pharmacy benefit contracting, will clearly outline important non-pricing terms.

2.  Carved-out Specialty Rx – A carved-out PBM also permits the plan sponsor to install a carved-out specialty pharmacy benefit. Because specialty pharmacy is the fastest growing and most expensive portion of any pharmacy benefit plan, carving-out specialty drugs provides all the advantages listed above including lower cost and more transparency.

3.  Customized Clinical Programs – Better data management and detailed analytics enable clinical licensed pharmacists, whether at the PBM or within a specialized advisory firm, to recommend, implement, and manage customized clinical programs based on the plan sponsors unique population. Examples of this include opioid management, diabetes management, and oncology programs.

4.  Lower Pharmacy Costs – A carved-out PBM contract allows for aggressive price negotiations and more competitive Request for Proposals (RFPs). Separating the medical and prescription drug benefits enables a plan sponsor to compare pricing for both benefits on an apples-to-apples basis. A direct PBM contract will also include the critical terms that govern pricing, including discounts, rebates, and soft dollar programs. In addition, administrative costs are not hidden within the healthcare benefits fee. Carved-in plans have increased fees and costs that reflect the health plan receiving compensation from their PBM arrangement.

5.  Improved Data Management – Stand-alone PBMs with carved-out plans and direct contracts with plan sponsors capture and report all claims elements, allowing for accurate modeling, forecasting, and strategic planning. Data feeds and FTP interfaces between the PBM and the medical claims administrator allow automated delivery of pharmacy benefit claims and integration with medical claims. Plan sponsors and advisors can use the combined analytics to track trends and make informed benefit decisions.

6.  More Detailed Analytics – The enhanced data management described above means more detailed reporting capabilities, more sophisticated analytical tools, and more accurate forecasting and modeling. All of these contribute to lower annual drug spending and better long-term planning. Best of all employers aren’t required to pay for their own data and aren’t told its proprietary information by their PBM or broker.

7.  Transparency – A carved-in plan has little or no transparency for the cost of the prescription drugs, the size of the mark-up, the rebates earned by the health plan, the contract volume pricing concessions negotiated by the health plan, or other financial incentives, all of which drive up cost to the plan sponsor. The health plan administrator provides none of the details critical to lowering costs, managing risk, and creating better clinical outcomes.

Medical and prescription benefits are completely different. The core strength of health plans and medical carriers is managing discounts with hospital chains and building provider networks. These skills are not transferable to managing prescription drug benefits, which are vastly different and, in many ways, more complex and more dynamic.

Employers with more than one hundred employees that are fully insured are losing out. Without adding to the HR department’s effort, carve-out service levels may be on par with or better with the right TPA and PBM partners. Oh, I nearly forgot to mention that the total cost of care may be cut by up to 40%!

Report: Specialty drugs are by far the most expensive, but classification seems arbitrary and other notes from around the interweb:

• Report: “Specialty” drugs are by far the most expensive, but classification seems arbitrary. The prescriptions with the most astonishing price tags — like cancer meds that can cost more than $20,000 a month — are usually classified as “specialty” drugs. You’d think that since they’re so costly, there would be clear criteria for putting drugs in the specialty category. But, according to a new report, you’d be wrong. The issue might seem arcane, but it’s hugely important. Specialty drugs account for only about 2% of the volume of drugs dispensed in the United States, according toq industry estimates, but they also account for more than 50% of overall drug spending. The report, by data analysis firm 46Brooklyn Research, found that the three largest drug middlemen in the United States often don’t classify the same medicines as specialty. It also said that a substantial portion of the ones they do put into that category are generics — drugs that are usually no longer under patent and thus are supposed to be cheaper because multiple drugmakers can supply them.

• How Payers Can Cut Through the Noise and Optimize Their PBM Partnerships. Some payers and PBMs are owned by the same parent companies, and in fact, they make up a large share of the market — something that has attracted scrutiny. The complicated relationships between these large, combined entities make it important to build a working partnership that aligns with the goals of cost-effective, high quality and accessible care. As payers work to optimize their PBM partnerships, the complexity of their agreements makes it important to increase understanding and apply best practices to ensure transparency and value. The thought of switching PBMs can be overwhelming and often immobilizes payers instead of evaluating opportunities that would drive a more sustainable sound partnership. Payers need PBMs as partners to provide core critical functions. To optimize their relationship, payers can take several key steps.

• What employers want to see as Congress aims to reform PBMs. A key Senate committee last week advanced a bill that includes several significant reforms to pharmacy benefit managers, including a ban on spread pricing. However, one provision that was left on the cutting room floor is a change that many employers are still hopeful to see, Alan Gilbert, vice president of policy at the Purchaser Business Group on Health (PBGH), told Fierce Healthcare. And that’s establishing PBMs as fiduciaries. While the Senate Health, Education, Labor, Pensions (HELP) committee considered a similar policy change, what made the final cut was instead a directive to the Department of Labor to study the issue to enable legislation in the future. Gilbert said that making PBMs fiduciaries in the pharmacy benefits process would hold them as accountable as health plans and plan sponsors. Pushing these companies to have more skin in the game would be key to curbing the worst of their behavior, he said.

• The Price of the PBM. One crucial element of the US drug supply chain is the wholesaler, who purchases drugs from manufacturers using purchasing power to gain discounts that average around 16 percent, according to IQVIA data. About 92 percent of prescription drugs are distributed through the three largest pharmaceutical wholesalers, McKesson, AmerisourceBergen, and Cardinal. Wholesalers earn revenue through “forward-buying,” purchasing extra inventory at current prices to sell them in future at a revised higher price.

Pharmacy benefit costs have become increasingly unsustainable, according to professionals in HR, finance, and procurement. Attempts to curb these costs, such as raising employee cost share and limiting access, have had limited success. Unsurprisingly, many pharmacy benefit managers (PBMs) are profiting significantly, often surpassing the actual cost of prescription drugs. Uncovering overcharges in pharmacy benefit management requires a unique skill set and values.

In this article, we present three key indicators to determine if your PBM is overcharging you, empowering you to improve your company’s pharmacy benefit management results.

1. Contract Definition for Brand, Generic, and Specialty Drugs: The contract definition for brand, generic, and specialty drugs serve as an essential starting point. If your definition resembles the following example: “Brand Drug means a prescription product identified as a ‘brand’ by Acme PBM or its designee using indicators from reporting services such as First Databank or other third-party reporting sources,” it’s likely that you are being overcharged. A vague or convoluted definition can be exploited to inflate costs. A report, by data analysis firm 46Brooklyn Research, found PBMs charged employers $16,000 for a 180-supply of the generic multiple sclerosis drug Tecfidera. Meanwhile the cash price (no insurance) is $162 for the same prescription. The investigation also discovered that 42% to 54% of the medications on the specialty lists were generics, which is a high percentage. They were therefore on expensive specialty preferred lists even though they are often off-patent and ought to be less expensive because of competition.
2. Contract Definition for Rebates: Examining the definition of rebates in your contract is crucial. Ensure that there are no unreasonable exclusions or limitations such as DAW codes, for instance. Remove any phrases resembling “Rebates do not include administrative fees paid by Pharmaceutical Manufacturers” or “Rebates do not include purchase discounts paid by Pharmaceutical Manufacturers or directly attributable to the utilization.” Such exclusions permit the PBM to retain discounts that otherwise should be passed through to the self-funded health plan.
3. Low or No Administrative Fee: An excessively low administrative fee should raise suspicion as it often indicates overpayment. If the administrative fee is artificially too low, how then does the PBM earn its management fee? PBMs want their clients to accept an artificially low administrative fee. It gives non-fiduciary PBMs a blank check of sorts to keep discounts they’ve negotiated with pharmacies, drug wholesalers and manufacturers. This becomes particularly concerning when the plan sponsor lacks audit rights on pharmacy reimbursements, cannot determine net costs through NDC claim level detail for rebates, or has limited input on benefit design beyond member cost share. These conditions limit transparency and will lead to overcharges.

Effectively managing pharmacy benefits is a complex task, demanding considerable time, effort, and expertise. While anyone can assess profitability from a P&L statement, understanding the underlying story behind pharmacy benefit cost drivers requires specialized skills, such as those provided by a Certified Pharmacy Benefits Specialist (CPBS). Similarly, uncovering overcharges in pharmacy benefit management to achieve lowest net cost necessitates a unique skill set and values. By being aware of the indicators discussed above, you can uncover potential overcharges and take steps toward improving your company’s profitability.

Major Trends in the 2023 Specialty Therapy Pipeline and other notes from around the interweb:

• Major Trends in the 2023 Specialty Therapy Pipeline. Specialty pharmacies grew by 315% between 2015 and 2021, with hospital or health system-owned specialty pharmacies accounting for about a third of this total growth—and that the specialty drug pipeline is projected to grow by another 8% each year through 2025. Specialty pharmacy continues to carry the FDA pipeline year over year with 39 more drugs that could potentially be approved by the end of 2023, and of those 39, 28 of them could be considered specialty. Listed first are 8 major recent specialty drug approvals that have the potential to change the standard of care in a given disease and/or have a large economic impact to the payer. Looking to the rest of 2023, there are several more specialty drugs anticipated to receive FDA approval. Here is a wrapped-up version of these anticipated approvals.

• Self-Funded Health Plans: Breaking the Myths to Find Cost Savings. Employees generally know healthcare is expensive, but they often don’t know just how expensive it is until they’re on COBRA and are shocked at the cost. Companies pay around $23,000 per year for family and $8,000 per year for single coverage medical insurance. For even a small, 100-person company, that’s a $1.6 million budget. While 3–5% savings doesn’t sound like much, it is a lot when you consider the high starting costs. But how do you achieve cost-savings on an employee benefit plan? Self-funding may be the answer, providing average savings of up to 10% per year. Misconceptions about self-funded health plans are a big inhibitor to adoption. We’ll tell you right now—the idea that companies must take on more risk isn’t true. Read on for more myths about self-insurance and what the real story is behind this cost-saving approach.

• Pharma-PBM Battle Escalates on Capitol Hill. As the legislators have advanced reforms related to PBMs and other drug pricing issues, manufacturers, insurers, and PBMs have escalated their attacks on each other. The Pharmaceutical Research and Manufacturers of America (PhRMA) recently launched a wave of anti-PBM TV ads highlighting how the middlemen limit patient access to needed medicines and fail to pass on discounts to consumers. Conversely, America’s Health Insurance Plans (AHIP) has financed a million-dollar campaign blaming pharma companies for high drug costs. And the PBMs’ Pharmaceutical Care Management Association (PCMA) is airing ads to highlight the benefits of their operations and the need for drug patent reform.

• The Price of the PBM. One crucial element of the US drug supply chain is the wholesaler, who purchases drugs from manufacturers using purchasing power to gain discounts that average around 16 percent, according to IQVIA data. About 92 percent of prescription drugs are distributed through the three largest pharmaceutical wholesalers, McKesson, AmerisourceBergen, and Cardinal. Wholesalers earn revenue through “forward-buying,” purchasing extra inventory at current prices to sell them in future at a revised higher price.

The debate on whether the Big 3 Pharmacy Benefit Managers (PBMs) offer better price savings just because of their size is a myth. The notion is largely perpetuated by the old guard who has benefited from overpayments received from opaque PBM business practices. However, the truth is that the Big 3 have more purchasing power, but their clients often don’t realize the full benefit. Does size really matter when it comes to pharmacy benefit managers and cost savings?

PBMs generate revenue from rebates following each eligible drug claim. Therefore, a PBM’s interest typically rests in raising prescription drug prices rather than decreasing them to get larger rebates. Pharmaceutical firms’ priorities have been fundamentally altered by this method; rather than competing to provide patients with high-quality, reasonably priced medications, they are now more interested in gaining the PBMs’ support for the top spot on formularies by providing generous incentives thus driving up costs.

Furthermore, there is a high concentration of purchasing power due to the vertical integration of the major PBMs, specialty pharmacies, and insurers. As a result, the three largest PBMs control 80% of the market for prescription volume. The following diagram shows the vertical business connections between retail chains, PBMs, and insurers:

For instance, while a rebate aggregator may pay a $3000 rebate for drug “A” and return every penny back to the client with an audit trail, the Big 3 may earn $4000 on the same drug but retain $1200 in-house, resulting in the plan sponsor pocketing an additional $200 when working with a radically transparent, albeit smaller, PBM.

Additionally, non-fiduciary PBMs use estimates in their price quotes, which can lead to discrepancies between projected and actual costs. As a result, the plan sponsor’s PBM contract is the most valuable tool to address the actual level of drug spending, not cost projections. However, non-fiduciary PBMs often use opaque contract language to eat away at the proposed savings, such as discount and rebate guarantees as soon as your plan goes live.

It’s essential to consider the PBM management fee in how you procure pharmacy benefit management services. The PBM management fee is largely an undisclosed fee that non-fiduciary PBMs charge for providing their services to plan sponsors, and the bulk of this fee is buried in the final plan pharmacy cost. Therefore, the contract is king.

Check out this free webinar if you’ve never considered the PBM management fee in PBM procurement. With transparency in PBM practices, smaller PBMs can offer more significant cost savings, as illustrated in the webinar below:

Remember that the size of a PBM does not always guarantee better price savings. Look for transparency in PBM practices to ensure that you’re getting the most value out of your pharmacy benefit management services. Having a trained eye enables a person to quickly and accurately identify details, patterns, and anomalies that may not be immediately apparent to an untrained observer. This can lead to better decision-making, problem-solving, and overall performance in managing a pharmacy benefit. The Certified Pharmacy Benefits Specialist (CPBS) program is the #1 training option for employee benefit brokers, consultants, HR, and Finance.

2023 Trends in Specialty Drug Benefits Report Released by PSG and other notes from around the interweb:

• 2023 Trends in Specialty Drug Benefits Report. Specialty drug costs have continued to push the boundaries in terms of complexity and affordability. The complicated landscape must consider many variables, such as multiple dispensing channels, dual payment methods, and site of care. This report takes a detailed look into what plan sponsors are facing as they make decisions relative to specialty drug benefit plan design. Additional topics covered in the report include increasing usage of new-to-market formulary blocks, interest in site of care programs, prior authorization tracking and reporting, and use of strategies related to biosimilars.

• Expert: Targeted Approach of Specialty Drugs Drives Rising Prices. In an interview with Pharmacy Times at the 2023 Asembia Specialty Pharmacy Summit, Naveen Mansukhani, BPharm, director of Operations and Account Management for Retail Pharmacy Services at Cardinal Health, discussed skyrocketing prices for specialty drugs and what is driving those increases. Q: Despite being just about 2% of overall prescription volume, specialty medications are now more than half of total annual pharmacy spending. Are there specific drug classes or disease states that are driving this issue? Naveen Mansukhani, BPharm: Specialty drugs are very targeted drugs to targeted disease states. Inflammatory disorders, oncology, multiple sclerosis, those are just some of the drug classes that are currently driving the specialty spend.

• Data and Collaboration Provide a Way Forward for Value-Based Care. In the 13 years since the passage of the Affordable Care Act, healthcare organizations and other stakeholders have recognized that tracking key performance indicators such as readmission rates, average length of stay and patient satisfaction are insufficient to realize the full potential of a patient-centered care experience. As value-based care models mature, measurements have expanded to include the social determinants of health and other issues that providers and payers must consider if they are to treat patients holistically. This includes the availability of transportation, family assistive services, affordable housing and other factors that provide a foundation for population health. This progress is encouraging, but the industry still has a long way to go. Clinical and financial metrics are just one lens to assess the success in delivering value-based care, and even medical, demographic, and economic data is insufficient. More granular, incisive data on the healthcare industry itself is required to fully assess how much progress the industry is making in delivering value-based care.

• What is transparency? Six things to look for in a PBM contract. If you don’t know the answer, they’re not transparent. PBMs aren’t incentivized to be transparent because they make money on drugs in many creative ways. So long as this remains true, their interests are not aligned with those of the employer or employees, and being transparent puts their business model at risk. For example, it’s an open secret that many PBMs make huge profits by negotiating “rebates” with drug manufacturers in the name of lowering the price of drugs. The truth is that those PBMs run a pay-to-play scheme, excluding from their formularies the drug manufacturers that don’t pay the rebates. The PBMs argue they are now passing most rebates received to employers to reduce drug costs. It should be no surprise that, at the same time rebate revenue has gone down for PBMs, they experienced a commensurate or greater increase in “admin fees” received from manufacturers for “processing rebates.” Whether you call it a rebate or an admin fee, it has the same effect: driving up wholesale drug prices and lining the PBM’s pocket at employer and patient expense. Another customary practice is “spread pricing,” where a PBM adds margin to the price they pay the pharmacy versus what they charge health plans and patients. Who keeps the spread? The PBMs, of course. And pharmacy owners, health plans, and health care consumers pay the price.

The current pharmacy benefit management industry developed from transparent third-party prescription claims adjudication in less than two decades to become incredibly lucrative and opaque. Most value choices that plan sponsors cannot or do not want to make are made by PBMs. Self-insured employer strategies for optimizing pharmacy benefit plan design includes six critical pillars. However, the majority of PBMs are non-fiduciary, which implies that their interests are not congruent with those of their customers. Without this, there wouldn’t be an issue.

Even worse, non-fiduciary PBMs take advantage of the inexperienced plan sponsors’ purchasing power by haggling with drug companies and pharmacies for their own financial gain. Prior to realizing they might utilize the inexperienced consumers’ purchasing power for their own financial advantage, non-fiduciary PBMs concentrated on cost-efficiency, or achieving the greatest results at the lowest possible price. In many instances, the emphasis has turned to promoting the services that would bring in the greatest money for the PBM.

Fiduciary PBMs are required to act in their clients best interest. Bad actors use pharmacy benefit plan design for bad things. Hence, smart purchasers of PBM services want more control over their plan design not less. If this is you, here are self-insured employer strategies for optimizing pharmacy benefit plan design that will lower your pharmacy benefit costs and improve outcomes.

I. Evaluate your internal resources and pharmacy expertise

If you’re reading this and work for a self-funded employer never retain the services of a PBM or a PBM consultant who benefits when your pharmacy costs increase. Should you do so, never leave them completely to their own accord.

• Do you have the expertise within your company to design the pharmacy benefit plan? Or do you need pharmacy benefits education or the services of a pharmacy benefits consultant?
• How do you want to be involved in the management of the plan design after it is set up?
• Do you have the expertise and resources to manage the plan design or do you need to build in the incentives for the PBM to manage your program? In other words, hire consultants not because you lack the requisite knowledge to design or manage the pharmacy benefit plan in-house, but because you lack the time or human capital to go it alone. Plan sponsors might be surprised to learn that many so called advisers know little more than they do when it comes to pharmacy benefits. 
• Who is watching the watcher? Employ digital innovations to continuously monitor your PBMs performance.

II. Access

A formulary is a list of medications for which a plan will provide reimbursement. When considering a formulary, access defines the basic aspects of a pharmacy benefit design which includes but is not limited to:

• The products that will be covered
• The products that will not be covered
• The products that need prior approval
• Plan cap or maximum dollar amount a plan will pay for outpatient drug benefits
• Mail service benefits including specialty pharmacy, if any
• Pharmacy network makeup 

Managing a formulary and improving its efficiency involves an ongoing assessment of the drugs on the formulary as well as any new potential drug therapy treatments. Again, do not leave this responsibility solely in the hands of the PBM unless it has agreed to accept fiduciary responsibility. Lastly, plan design considerations must take into account DAW or dispense as written laws for each state.

III. Medication Adherence

Medication adherence is a large and growing issue that has an impact not only on patients’ health, but also on employer finances. Non-adherence to medications has been linked to 30-50% of treatment failures and 125,000 deaths each year, according to statistics gathered by the American College of Preventive Medicine. In addition, non-adherence results in $290 billion in annual healthcare spending, $100 billion of which is due to hospitalization and rehospitalization that could have been avoided if medications were taken as prescribed. Simply put, even the most perfectly designed plan in the world can’t make up for poor adherence. Monitor adherence plan-wide and take corrective action for patients whose adherence is average or worse.

IV. Cost-Containment

Major cost-containment elements of pharmacy benefit plan design are plan restrictions, limitations and exclusions. There are many types of limitations used in varying degrees but they often lack the oversight [human] necessary to be effective over the long-haul. These elements encourage members to utilize low(er) cost alternatives:

• Therapeutic Substitution
• Mandatory Generic
• Plans caps or the maximum amount a plan will pay for outpatient drug benefits
• Partial fill programs or quantity limits on medication members can receive

Cost-Shifting (or Cost Sharing)

There are three major types of cost-sharing: copayments, deductibles and coinsurance. Cost shifting refers to when members receive a more costly alternative to a preferred product they are required to pay the higher copayment. Another example, when members receive a branded product which has an available generic equivalent, they are required to pay the additional costs associated with the branded. Cost-shifting does not mean placing an unnecessary financial burden (i.e. copay accumulators) on patients. According to the economic principles of demand, as price increases, demand tends to decrease. In the case of prescription drugs, price is the member’s OOP (out-of-pocket). As cost sharing increases, utilization decreases. However, it’s a catch twenty-two as there is a point of diminishing returns. You don’t want utilization to decrease so much that it causes an increase in hospitalizations or emergency room visits, for example.

VI. Outcomes and Safety

The sixth and final pillar does not provide or limits coverage for those products that do not improve or maintain the health of the members or have a tendency to be abused or overused. These products are often referred to as LCVs or low clinical value drugs. Some examples include:

• Hair growth treatments
• Over-the-counter drugs
• Growth hormones
• Erectile dysfunction
• Weight loss/gain drugs
• Smoking cessation products.
• Opioids 

This portion of the pharmacy benefit design is accomplished by clearly defining which drugs and/or therapeutic categories will not be covered or are limited in their coverage. Once a plan is in place there must be ongoing evaluation (far beyond standard reports) to determine how well the plan is achieving the goals and objectives upon which the plan is based. Critical to the process is the availability of data. I’m aware how tough some PBMs make it to get access to data. You would be wise to negotiate unrestricted access to this data upfront; before the contract is signed.

In conclusion, there are four primary drivers of pharmacy cost; price, product mix, utilization, and cost share. Pharmacy benefit plan design is responsible for three-fourths of the cost drivers which means it has a substantial impact on outcomes and final cost to the plan.