A Better Way to Business Survival than Loans, Layoffs and Locking the Doors — Step 3
Carve out PBM
The average Joe probably isn’t familiar with the term “pharmacy benefit manager” — “PBM” for short — yet the dominant Big 3 PBMs are all Fortune 50 companies. In fact, they are so big, they can acquire one of the biggest health insurers in the world.
Interestingly, there are three PBMs, but not one purely pharmaceutical company in the Fortune 50. How is that so?
That’s because PBMs are organizations that liaise as technically non-pharmaceutical middlemen between drug manufacturers and pharmacies. In exchange for placement on pharmacies’ formularies, PBMs negotiate rebates and discounts off drug prices with their manufacturers. The problem is, many PBMs practice opaquely, pocketing the rebates they should be passing along to the pharmacies and their consumers. Rebates are just the tip of the iceberg on PBM shenanigans that transfer money from employees wallets to theirs.
Fortunately there are high-value PBMs out there, making it possible for business leaders to have transparent pharmacy benefits, and, in turn, low-cost, high-quality health plans.
Step 3. Carve out PBM — The “C” in the LOCAL acrostic
Once you’ve given yourself freedom in Step 2, it’s time to start where the lowest-hanging fruit is because profiteering is so extreme, yet easy to fix without any noticeable impact on members. With transparent pharmacy benefits, business leaders and their benefits advisors work together to access, understand and utilize pharmacy claims data. That requires PBM contracts to make clear you own your claims data as the purchaser of services, and that you have the right to use that data to make informed decisions.
The best informed decisions are made when business leaders pair their own data with unbiased consultants equipped with analytical know-how, pharmacy industry knowledge, and vendor insight to negotiate better PBM contracts. This will ensure you have a clear understanding of the terms and conditions that are often the source of hidden costs — even definitions left in OR out of a contract can be financially devastating.
This is especially true when it comes to “guarantees” in the PBM-purchaser contract. Average Wholesale Price (AWP) with its associated “discount” is the common method for evaluating PBM financial performance. AWP really means “Any Wild-assed Price” or “Ain’t What’s Paid” to be less snarky. Because AWP is often confusing and misleading, it can reduce leverage in negotiations.
Another issue is distribution channel pricing variability, such as mail order and specialty. Mail order prescriptions could actually be costing you more than the same drug at retail. Some mail order and specialty pharmacies offer services for “cost plus a management fee,” which can be far less expensive than the AWP “Ain’t What’s Paid” model. So, when evaluating a PBM’s channels, consider carving out mail order and specialty pharmacy services from the PBM contract, and determine whether it makes sense to leave all of the PBM services with one vendor.
Using strategies like these, the state employee health plan for New Jersey has already saved over $2 billion on drug spending. Caterpillar didn’t see overall healthcare costs go up for a decade despite only focusing on drug procurement. Pacific Steel’s Rx procurement strategy was a big part of how ridding themselves of profiteering resulted in dropping their spending by more than 50%. And many much smaller health plans are seeing similar savings using exclusively high-value PBMs. Our movement’s experience has been pharmacy spending can be cut 20–30% resulting in an overall healthcare spending reduction of 5–10% depending on how heavily drugs are used in a particular health plan.
All this is a testament to the fact that knowledge is, indeed, power in a health benefits transformation. What’s equally powerful, however, is what’s up next: Value-based primary care.
Next in the series is the “A” in the LOCAL acrostic — Add Value-based Primary Care:
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Dave Chase is the co-founder of the Health Rosetta (an organization sharing and implementing practical, non-partisan fixes to healthcare), and author of the book, “The Opioid Crisis Wake-up Call: Health Care is Stealing the American Dream. Here’s How We Take it Back.” Follow the link to the book for a free download of the book. Chase’s TEDx talk was entitled “Healthcare stole the American Dream — here’s how we take it back.” See the Health Rosetta website for how to get involved, resources and how to join others to support its mission.
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