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Tip of the Week: Fiduciary Model Pharmacy Benefit Managers (PBM) are a Thing

Clayton Christensen’s business concept of “The Innovator’s Dilemma” is one of my favorite books. In it he writes about how incumbent companies lose to new business models because they are too busy protecting their older legacy business models. Non-fiduciary PBMs don’t focus on a fiduciary standard of care or radical transparency because they are too busy protecting their older, opaque business models. 

Disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition). Small teams are more likely to create disruptive innovations than large teams. A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets.

TransparentRx is the first fiduciary model PBM in America and now another PBM, Drexi, has joined the ranks of the disruptive. From the press release, “Advanced Medical Pricing Solutions (AMPS), a pioneer in healthcare cost containment, is pleased to announce the expansion of its fiduciary duties to include Drexi, its pharmacy benefits manager (PBM) solution…The expansion makes it one of the first PBM fiduciaries in the U.S.” I like how they were careful to write “one of the first.”

We welcome the competition as it benefits the market – plan sponsors, patients and other stakeholders. It also makes our job easier when explaining the difference between a fiduciary PBM and one that isn’t to a potential client. I’ve not yet personally had a chance to review the AMP’s PBM service agreement so I can’t comment on whether or not the contract nomenclature is truly fiduciary in law and spirit. Here are some things employers must look out for when considering doing business with a fiduciary PBM.

1) PBM or Pharmacy Benefit Administrator (PBA) provides radical transparency

2) Any revenue currently collected by the PBM from the manufacturer or rebate aggregator is disclosed and employers receive 100% of these earned refunds (less data fees) 

3) Gives full auditing rights in PBM contracts including unrestrictive access to claims data

4) Fiduciary PBMs are substantially at risk. $100K on a $10M drug spend is not substantial

5) No exclusivity. The primary reason PBMs suggest you not carve-out is due to their own selfishness. Despite what they tell you it is not because carve-in adds more value. They only share the good it does not the harm. Caterpillar has carved-out PBM services for more than a decade with much success.

6) Elimination of spreads. In some cases, a PBM will charge the plan sponsor more than they pay the pharmacy to fill a prescription.

In business theory, a disruptive innovation is an innovation that creates a new market and value network and eventually displaces established market-leading firms, products, and alliances. I’d be worried if my wagon were hitched to a PBM holding on to old legacy business models.

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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