When a prescription drug is dispensed at the pharmacy counter, patients pay cost sharing to the pharmacy, which usually consists of a fixed payment (copayment) or percentage of the drug’s list price (coinsurance), with the cost-sharing varying by the drug’s formulary tier placement). Employers, through their contracted insurance carriers, pay the pharmacy the amounts determined to them by their PBMs.

Click to Learn More

Many employers do not pay administrative services fees to PBMs, but simply pay prescription drug claims and receive monthly manufacturer rebates passed through by PBMs. The contracts between employers and PBMs usually specify certain savings guarantees (based on list prices) but often limit the employers’ right to audit. At the end of each fiscal period, PBMs send reports to employers showing that the contractually specified savings guarantees have been honored, and sometimes that additional savings (again based on list prices) have been achieved.

Tyrone’s Commentary:

This is a great article which was originally written on healthaffairs.org. It is factually accurate and offers some good tips for self-insured employers. One thing (well two things but more on that later) in the article really bugs me. The article touches on it but doesn’t go into a deep dive. That is holding employers and consultants more accountable when it comes to being a more sophisticated purchaser of pharmacy benefits. Non-fiduciary PBMs won’t willingly forgo profits that are driven largely by hidden cash flows. You must demand they do it and that starts with education. With education comes more confidence then, eventually, an unwillingness to accept the status quo. Oh before I forget…the other thing which bugged me about the article is I wish they would have at least sited this blog in the article. Some of the strategies discussed in the original article can be found right here in this blog and no where else. Bummer! 

This seemingly convenient and advantageous contractual arrangement (from the employers’ perspective) deprives employers of the ability to completely understand the drug benefit design, evaluate the efficiency of their drug utilization, and assess the PBM’s performance. For example, employers may not know that reclassifying some drugs as generic (or branded) can have important implications for their costs or that their employees may have been steered to utilize expensive drugs when cheaper generics are available. This inefficient contractual arrangement leads to overutilization of expensive drugs, higher patient cost sharing, and higher employer spending on drugs.

[Read More]