The Employer's Guide Blog for Overseeing PBMs

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Two Ways to Avoid Paying a Premium for PBM Services

This week I was faced with an interesting dilemma. One that I’ve advised many clients recently, but it takes a different dynamic when it affects you personally.  I pride myself on the do as I do, not as I say philosophy. During the past year, I’ve been in the market for a new pharmacy management software system. My research has concluded thus two options remain; Mckesson Enterprise or QS/1.

The Mckesson software package offers all the bells and whistles plus the ability to easily scale as our business continues to grow. That a company with over $50 billion in annual revenue offers such a product is not surprising. In addition to the standard features expected in a pharmacy management system, Mckesson Enterprise also has integrated credit card processing, electronic PDMP reporting, and workflow management.  Unfortunately, it also comes with a mandatory cost of $7,000 for on-site training and purchase of one PC workstation.

The QS/1 system is installed with every feature required:  SaaS or web-based, PDMP reporting, DUR, and claims submission. Yet, there is no additional expense for training or purchase of a PC workstation.  The QS/1 account manager recommended on-site training (at an additional cost), but I inquired about remote training and my request was happily granted.  Furthermore, the monthly maintenance fee was almost 50% less than that of the Mckesson product saving us another $4,000/year!

Why does Mckesson not offer remote training?  More important, why would a company pay significantly more for a product it can attain elsewhere at a much more inexpensive price point? Consider the Benefit Pyramid below.

Mckesson has a great deal of brand awareness and equity.  Mckesson’s clients will often times pay a premium for this brand recognition. Consequently, Mckesson is able to charge clients a huge premium for two very distinct reasons:  the Benefit Pyramid and Cognitive Modification.
Managers are burdened with so much work that they often times make poor decisions only to avoid having more work added to their to do list.  Managers fall in the Pain Avoidance and Preservation stages of the benefit pyramid.  They are not as concerned about profitability as say an owner or CEO. As a result, bad purchase decisions are often made which lead to drastically overpaying for products and services.  A person with direct financial interests will balk and many times walk away.  Hence, my decision to go in a different direction.
Companies of all sizes are paying far too much for PBM services; much of it attributed to managers wanting to avoid more work as opposed to looking out for the company’s financial performance.  On the other hand a CEO or owner is concerned first about financial performance thus his/her position at the top of the benefit pyramid. A CEO or Lieutenant should always be directly involved, from beginning to end, in the decision to select a pharmacy benefit manager.
I almost made the decision to purchase Mckesson’s product even though it was more costly.  I created, in my mind, all sorts of reasons why their product was better.  Some of the reasons (or excuses) were I’m more familiar with them, they’re bigger so the product must be a better, and it is more expensive so the product must be the best of the two. Cognitive modification is the behavior of unknowingly creating reasons to justify a position all though it may not be in one’s best interest.
Is a big company name or wanting to avoid more work enough to warrant paying twice as much for similar services?  Not in my opinion. Decision-makers in the PBM selection process must avoid those two pitfalls and select providers based solely upon the environmental, social and economic return to their organization and its stakeholders.

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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