Many employers rely on carrier partners and claims administrators to arrange cost-effective network allowances and quality measures, and to provide efficient claim paying strategies for their group medical plans. But savings aren’t just going to fall in your lap. In order to successfully manage costs, you need to carefully examine all aspects of your healthcare plan, including your Pharmacy Benefit Manager (PBM). PBMs are generally responsible for creating approved medication lists, contracting with pharmacies, negotiating discounts / rebates with drug manufacturers and processing prescription drug claims. Doing a Pharmacy Benefit Manager Review and taking a closer look at your PBM’s performance could provide important cost information to help you work toward a more budget-friendly strategy.
Pharmacy Benefit Manager Review
With prescription costs on the rise, specifically with specialty medication costs driving double-digit increases in pharmacy spending, understanding each component of your pharmacy program should be a priority. To get a true sense of what is happening with your PBM, we suggest you start by conducting a pharmacy program audit. This should include a review of the existing PBM contract and plan format. You will want detailed information on the following points:
- Pricing Discounts What are they on the average wholesale price (AWP) for branded medications?
- Maximum Allowable Cost (MAC) What is this for generic medications?
- Dispensing Fee How much is charged for each prescription issued?
- Rebates How are they addressed? Are they retained by the administrator in consideration of an administration fee credit?
Are they returned to the plan?
- PBM Administration Fees Are there any in place (either on a per-prescription basis, or a per-member, per-month basis)?
Review Programs Are there any in place to ensure safe and appropriate use of medications (i.e., Step Therapy, Quantity Limits, Prior Authorization)?
- Network Election Does your PBM provide a broad, national retail network, or is it a narrow network? Have you obtained deeper discounts as a result of a narrow network election?
- Claims Review Depending on the size of your plan, a claims review of plan utilization should be completed. To get started, you should first review claims data from your Pharmacy Benefit Manager Review. The numbers should be balanced to ensure that the underlying drug costs within your actual spending meet the targets and guarantees outlined in your PBM contract. Next, compare your existing PBM contract with the current market pricing.
- Get It in Writing Once you have completed a review of your contracts and historical claims, your priorities and strategic goals can be matched in the selection process for your new PBM contract (and relationship). In any proposed changes, it’s important to retain the right to audit future results. The Pharmacy Benefit Manager Review should be considered an ongoing process to ensure pricing goals and guarantees are met, and to make certain that your contract and PBM relationship remain current and competitive within the industry.
The steps outlined above can make a significant difference in the pricing and overall quality of your pharmacy benefits. To illustrate, consider the following case study:
A client utilized a carrier model for medical claims administration and the PBM. The carrier retained rebates and provided an administration fee credit for the rebate value. The carrier maintained a spread pricing approach within the PBM.
The client wanted to improve the net administration costs and overall pharmacy spending. During a review, it was determined that this goal could be successfully achieved by moving to a fully transparent pricing model with a carve-out PBM. To achieve this, the client made several changes focused on fixed cost, rebate and contractual language.
As healthcare expenses and the costs of group medical plans continue to climb, it’s important to make cost-saving efforts a key part of your business model. Keeping tabs on your PBM and regularly evaluating its performance can potentially return valuable savings that benefit you and your employees. For additional guidance on beginning a PBM review, or to improve your current evaluation practices, we encourage you to contact the experts on our Group Benefits Team.
This article originally appeared in the 2017 | ISSUE THREE of the SilverLink magazine, under the title “Prescription for Savings.” To receive a complimentary subscription to the SilverLink magazine, sign up here.