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Time to Blow Up Your PBM Strategy — Here’s How

Some of the main causes of plan sponsor excessive remuneration for pharmacy benefits include specialty medications, pharmacy benefit manager contracts, plan design strategy and employee demographics and dynamics.

If you’re facing any of the main causes for cost increases listed above or are working to improve patient outcomes while managing rising pharmacy benefit costs, continue reading. It may be time to blow up your PBM strategy.

Marshal In-House Experts.  Mom always said, “When you absolutely need something done right, do it yourself.” Still today, this philosophy often proves true. When employers truly comprehend the ramifications of how PBMs make money, the employer is in a much better position to successfully manage the PBM relationship and to negotiate contracts that maximize the value in the prescription drug plan.  This is especially true for employers who lack internal expertise, from both sides of the table, in pharmacy and/or pharmacy benefits.

Vet PBM Consultants not just for “advice” but Implementation and Execution.  PBM consulting is not a one-off linear implementation, but a lifecycle of iterative and multi-layered phases.  Each phase has its own set of practices and disciplines that are essential for optimizing processes against set performance outcomes.  PBM consultants should help clients to assess, analyze and determine a viable roadmap initially and then build momentum throughout the contract term with consistent, incremental deliveries demonstrating measurable and meaningful business gain.

Reverse Auctions – Dump the Traditional RFP. Reverse auctions create a hyper-competitive environment, driving best value for payers. The process often yields savings of more than 15% and allows the payer to probe deeper into the PBM’s formulary structure and their inclusion of high-cost specialty drugs that often require special handling and administrative complexities.

Once a daunting task for companies, open bids are easier to execute with newly available, sophisticated RFP technology that reduces the time and money spent on determining and securing the best prices and contractual terms. Payers must create their own fiduciary contract and put it out for bid vis-à-vis reverse auctions.

Demand a Fiduciary Standard from Your PBM.  A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary unless the principal consents.

How is it that a plan sponsor, regardless of size, can sign a deal which doesn’t hold its PBM accountable to a client-comes-first standard of care? High Flying Organizations (HFOs) are hustled out of their hard-earned money every day by some TPAs and pharmacy benefit managers. Add an additional safety net by requiring your PBM to sign as a fiduciary. Be prepared, your legacy PBM may not offer a fiduciary contract; here’s why.

Think of Prescription Drugs not just as a Cost but a Cost Offset Opportunity.  Type 2 diabetes is a progressive disease which usually occurs slowly over time, for example.  Most people with the disease are overweight or obese upon diagnosis. Increased fat makes it harder for the body to use insulin the correct way. In my opinion, type 2 diabetes is the disease state which offers payers the largest cost offset opportunity.
The goal of treatment, at first, is to lower high blood glucose levels.  Long-term goals are to prevent problems from diabetes.  The most important way to treat and manage type 2 diabetes is with activity and healthy eating.  While some patients heed the advice of their physician; exercise more often and adopting a healthy diet, most do not.  Consequently, the disease will progress eventually causing severe nerve damage, kidney failure or blindness.
One solution, every member diagnosed with type 2 diabetes should receive Tier 1 medications at no cost and automatic enrollment in a MTM or medication therapy management program.  That’s right, free!  With that in mind, here is my template of a bleeding-edge four tier plan design:
  • Tier 1 (Rx1) comprises only lower-cost generic drugs.  The medications are simply less expensive yet efficacious. 
  • Tier 2 is reserved for most injectables, gene therapies, and biotechnology treatments.  Isn’t it time to reposition brand drugs and include only generic and specialty drugs in the first two tiers?  In order to protect their rebate dollars, PBMs will oppose this idea.
  • Tier 3 consists primarily of 2nd and 3rd generation brand drugs.  These are reserved for brand drugs which do not have a generic substitute or therapeutic equivalent in Rx1.    
  • Tier 4 is made up of 1st generation brand molecules (non-preferred) which have generic or therapeutic equivalents in upper tiers and some injectables.
Each tier, excluding Rx1, requires a prior authorization, quantity limit and/or step therapy. Here is the trade-off.  While the lower three tiers feature the common escalating scale of copayments, the top level (Rx1) is free for members; no out-of-pocket expense.  Keep in mind, the average cost of a 30-day supply of products on the 2nd tier is $1,000.

Shift Administration of Specialty Drugs from the Medical Plan to the Pharmacy Program.  It can be challenging for employers to estimate their spending on specialty drugs because these drugs are sometimes billed through medical benefits and other times billed through PBMs.  The inconsistency makes it difficult to forecast how much is being spent on specialty pharmaceuticals.

When employers move the administration of specialty drugs from the medical plan to the pharmacy program, they can take advantage of better cost and care measurement.  For example, instead of a doctor ordering and dispensing a specialty drug in their office and billing it as a medical benefit, a prescription drug program can better manage the drug’s cost and patient’s care.

Ax Your Pharmacy Benefit Manager.  Far too many employers fear that they do not have the human capital or time to make a PBM change.  Some worry a transition will lead to disruption among employees, but the alternative could be much worse resulting in dire consequences.  Given the perceived complexity of the PBM industry, it is easy to buy into this mindset. 

By 2020, prescription drug spending will reach $400 billion annually; employers will carry much of the costs.  Transitioning to a new PBM does not inevitably equal disruption for employers or their employees.  However, minimizing or eliminating disruption requires that you work with a proper PBM. 

If your PBM is not giving you what you need in terms of service or savings — make the change. Plan sponsors who are aware of imprudent PBM practices run an enormous risk by dealing with them.  Those who claim that they are not aware of such practices (e.g., regarding the creation of formulary and drug pricing) should not be excused. 

In conclusion, all forms of remuneration received from PBMs should be disclosed and justifiable with respect to the level of services rendered.  All compensation paid to PBMs should be reasonable.  To the contrary, it is not a stress-free, simple solution to remain with the same PBM.

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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