Tuesday Tip of the Week: Commercial Employers Pay More Than Public Sector Employers in Spread Pricing
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Most consumers and employers alike are unhappy about the cost of drug prices. In 2016, the U.S. spent $450 billion on prescription drug costs, and spending is projected to increase to $610 billion by 2021. Even though 90 percent of prescriptions filled in the U.S. are for generic medications, brand-name medications account for 74 percent of spending on medications in the U.S. Generics save Americans billions every year. In fact, generics saved U.S. consumers $253 billion in 2017 and over $1 trillion in the past decade.
FAST FACTS: GENERIC AND BRAND-NAME MEDICATIONS
What are generic drugs?
Generic medications are a chemical copy of the original brand, with the same active ingredients. Generics are also available at a lower cost than brand-name medications. In fact, generic drugs cost 85 percent less than the brand version on average.
Tyrone’s Commentary:
The generic dispensing ratio (GDR) or the number of generic fills divided by the total number of prescriptions is a standard performance metric on which pharmacy benefit designs and their managers are routinely evaluated. For every 1% increase in GDR a plan realizes a 1.5% – 2% reduction in net cost. For this reason, no plan should have a GDR less than 89% unless efficiency (i.e. eliminating wasteful spending) isn’t the #1 goal.
Are generic drugs always safe to take?
Yes. Generic medications must meet the same quality standards for approval by the FDA as brand-name medications. Generics have to prove they are bioequivalent to the brand version. Bioequivalence means the generic works the same way and provides the same benefits.
It’s the FDA’s job to monitor drug safety. They inspect over 3000 drug manufacturer facilities around the globe every year. The FDA also monitors generic medication safety after drug approval. If the FDA discovers problems with safety or quality, a recall is issued for the affected medication to keep the public safe. For example, if there are reports of a medication causing side effects, or adverse reactions, FDA investigates and acts when needed.
You may have heard about different blood pressure medications being recalled, as well as and the heartburn medication Zantac. These medications had trace amounts of cancer-causing impurities. FDA issued recalls on these medications to remove them from the market. FDA also increased safety checks to prevent contamination problems in the future.
Is there a difference between a generic and name-brand version of a drug?
Generic medications go through testing for quality, strength, purity, and potency to show effectiveness before approval by FDA. They must have the same active ingredient and provide the same benefits. There are a few differences, however. Generic and brand medications don’t look the same. Generics may have slightly different inactive ingredients (fillers, binders, flavors, etc.). These don’t affect how the medicine works.
This document is updated weekly, but why is it important? Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs, and MCOs pursuant to health care reform.
Step #1: Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.
Step #2: In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.
Step #3: Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement. It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.
Step #4: Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.
Multiple price differential discoveries mean that your organization or client is likely overpaying. REPEAT these steps once per month.
— Tip —
Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.
If the tables were turned and someone I didn’t know came to me with a proposition, even one that was appealing, I would be hesitant because I would be wondering – what’s the catch? What does this guy know that I don’t?
Don’t hesitate. I do own a PBM. I did work for one of the Big Five pharmaceutical firms negotiating rebate contracts with PBMs. And if that’s not enough I also owned a mail-order pharmacy. Simply put, I have access to a side of the business that likely do not. I open up the black box. Take 30 minutes of your time to watch the webinar.
Who Should Watch:
• HR Managers & Executives
• Agents, Brokers & Consultants
• Insurance Executives
• Benefits Specialists
• CFOs
• Controllers and Directors of Finance
In return, I disclose critical information that has been traditionally withheld from self-funded employers and their advisers. I share this knowledge so that you have an opportunity to cut your PBM service costs, by as much as 50%, without reducing benefits or shifting costs to employees.
This document is updated weekly, but why is it important? Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs, and MCOs pursuant to health care reform.
About 15% of employers change brokers each year and likely double that stay with their broker even though they are not satisfied with the ROI. At the point when you consider the effect of the Covid-19 pandemic on staff, HR groups need now, like never before, to know their employee benefit brokers are genuine advocates and fully aligned in accomplishing HR goals. Here are three tips for employers and HR professionals to help pick the right insurance broker for pharmacy benefits.
1. Broker relies on technology.
2. Ask about conflict of interests.
If you’re reading this and work in HR or finance for a self-funded employer, never retain the services of a broker or PBM consultant who benefits when your pharmacy costs increase. Should you do so, be sure to have signed a conflict of interest disclosure form.
A potential or actual conflict of interest exists when commitments and obligations are likely to be compromised by the broker’s other material interests, or relationships (especially economic), particularly if those interests or commitments are not disclosed. 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.
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3. Check the credentials.
Many employers, unions, and government agencies pay large consultancies and brokerage firms to help them avoid overpaying for pharmacy services. So then how does this keep happening? There are a number of reasons including misaligned incentives, inefficient procurement and overall lack of a pharmacy benefits strategy just to name a few. But, the primary reason is without question a wholesale lack of education around pharmacy benefits management in general. It is education which leads employers to leveraging the four pillars to better PBM performance. When you hear an insurance broker say, “I know just enough about pharmacy benefits to be dangerous” run for the hills!
Education is key to use of lowest net cost drugs in pharmacy benefit plans. Only the most sophisticated purchasers of PBM services will have the knowledge and confidence to bind lowest net costs for prescription drugs into contract language and benefit design. Hence, your competitive advantage includes executing good analysis of the correct information then deciding what all of this suggests for your organization. Those who seize the chance and develop a good plan that may reasonably be accomplished have a higher probability of getting to lowest net cost.
The Ohio Department of Medicaid on Thursday started the process of hiring a private administrator to oversee its $3 billion pharmacy benefit program. The department requested proposals for a pharmacy operational support vendor to help design its program and provide financial oversight once it’s up and running. Medicaid created the new post as part of a broader overhaul of its managed care program.
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In addition to rebidding contracts with private managed care organizations that oversee the program, the state agency is also replacing five pharmacy benefit managers hired by those private organizations to process claims with one company hired by the state and monitored by the administrator. The added oversight comes after a report showed PBMs billed the state far more than they paid pharmacists and kept the difference, allowing them to receive $224 million in one year — an amount generated by PBMs charging three to six times the standard rate, according to an independent analysis.
Tyrone’s Commentary:
Your pharmacy benefit manager owes you nothing. In its most simplistic form it is merely a facilitator of goods and services. At best, it is your adviser offering suitable goods and services but not necessarily the best goods or services. To owe its client something, the PBM would have to act as a fiduciary. Have you noticed how often PBMs get sued but rarely lose in court? Employers believe that PBMs owe it something the courts say otherwise. You see non-fiduciary PBMs generally rely on the demands of its clients for how much cost savings they will provide. Moreover, non-fiduciary PBMs provide disclosure of important contract details to a level demanded by the competitive market. In other words, non-fiduciary PBMs have learned how to leverage the purchasing power of the unsophisticated plan sponsor to their financial advantage. The truth is most, if not all, of the excessive costs embedded in non-fiduciary PBM service agreements can be eliminated if stakeholders (HR execs, CFOs, benefits consultants, brokers etc…) concern themselves more with self-education and accountability and less with self-preservation. If I here one more time “no one has ever been fired for hiring Express Scripts”😕. The state of Ohio was humbled and now has a plan to win full disclosure and eliminate overpayments to non-fiduciary PBMs. You could establish a POSV or just hire a fiduciary-model PBM and achieve two aims at once – eliminate PBM overpayments and do away with duplicative consulting fees. What is your pharmacy benefits management strategy?
“The POSV (pharmacy operational support vendor) will ensure monetary incentives are properly and fairly aligned, eliminate self-dealing and steering, and monitor and close potential pricing or rebate loopholes,” said Medicaid Director Maureen Corcoran. “In short, the POSV ensures that the fox is no longer guarding the chicken coop.” The administer will operate independently from the pharmacy benefit manager, providing oversight and ensuring pharmacists are paid accurately for the prescriptions they fill.