The Employer's Guide Blog for Overseeing PBMs

The Definition of Oversee: to watch over and direct (an undertaking, a group of workers, etc.) in order to ensure a satisfactory outcome or performance.

Hold middlemen’s feet to the fire to cauterize specialty drug spending

With no end in sight to the rise in specialty drug prices, experts urge employers to be creative in managing those costs — from building custom networks to holding pharmacy benefit managers accountable for treatment outcomes.

Drugmakers have received the brunt of public outrage for the high prices of some specialty drugs, which require special handling and are used to treat diseases such as cancer, hepatitis C and rheumatoid arthritis. Many specialty drugs are pricey: Epclusa, Gilead Sciences Inc.’s hepatitis C drug that the U.S. Food and Drug Administration approved last week, comes to market at about $75,000 for a single course of treatment.

But experts say employers should be aware of the many middlemen, from PBMs to retailers, that profit from the drug. “When it comes to the distribution of drugs, every time that drug passes through another hand, there’s a margin that’s captured by whoever is handling it. Whether it’s the wholesaler, retailer or a doctor, everybody’s getting a piece,” said Alex Jung, Chicago-based principal of global strategy at Ernst & Young L.L.P.

But employers aren’t doing enough to hold middlemen accountable for the costs they add to the prescription drug bill, and few employers have custom pharmacy networks and direct contracts with health care providers to ensure they pay the lowest costs but get the best outcomes for their employees, she said last week during the Midwest Business Group on Health’s Employer Forum on Pharmacy Benefits and Specialty Drugs in Chicago.

Tyrone’s comment:  The key to eliminating pharmacy overpayments is to become highly educated in the pharmacy benefits management industry. Make no mistake about it; much of the excessive remuneration from plan sponsors to PBMs is due to overpaying for pharmaceuticals. For example, mail-order Rx’s are not always less expensive than retail. Another example, preferred pharmacy networks don’t always deliver cost-savings compared to non-preferred networks. In many cases, the opposite is true; they are more expensive! Middlemen want to keep employers in the dark so the cash cow continues to feed them. One can’t hold a PBM accountable if they don’t know exactly how PBMs go about the business of making money.

There are two factors which determine how effective an employer is at paying the lowest possible price while not sacrificing health outcomes: negotiating skills and industry (PBM) knowledge. It is important to recognize that offering a pharmacy benefit is inherently expensive, but with a PBM’s buying power the pain is supposed to be alleviated. However, when PBMs hide cash flows the primary reason we exist is subverted; that is to lower cost for our clients. Instead PBMs seize the opportunity to take advantage of employers’ lack of knowledge and/or desire to keep cost low. Most plan sponsors, and their agents, don’t know what they don’t know.

Employers need to understand what diseases are prevalent among their employees and “construct a network that meets your needs by looking at a provider that serves those needs from a therapeutic perspective,” she said. “You can’t just say I’m going to follow whatever Boeing (Co.) does or whatever United Airlines (Inc.) does, because … they’re not creating a customized specific benefit plan that meets the needs of the specific therapeutic diseases that are prevalent in your population.”

But most employers don’t have the expertise to navigate the prescription drug industry or devise custom pharmacy networks. And only employers with thousands of employees have the power to form direct contracts, experts say.


Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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