BASICS OF PHARMACY MANAGERS

Whether you sponsor a self-funded or fully insured medical and prescription benefit plan for your employees, there's a good chance you'll be purchasing medications through a Pharmacy Benefits Manager (PBM). There is also a high probability that you are completely ignorant of what a PBM is and how it works. You're not alone!

PBMs are notorious for their opaque internal workings and have seen periods of scrutiny from secret deals with drug makers, the development of drug formularies, discounts and "spreads", and more. The purpose of this blog is to provide you with some basic information about PBMs and the role they play in your drug plans.

WHAT IS A PHARMACY BENEFIT MANAGER (PBM)?

A pharmacy benefits manager is basically an intermediary between businesses and employers who sponsor health insurance plans, insurance companies, drug manufacturers and wholesalers, and consumers. Plan sponsors typically hire or contract a PBM to fully manage their pharmacy benefits and access the following solutions:

Retail pharmacy networks

Development of medication lists

Mail order programs

Drug discounts through bulk purchase

Clinical programs (i.e. step therapy, quantity limits, mandatory generics, prior authorization, etc.)

Analysis of drug use

Determination of eligibility

Claims processing and adjudication (depending on plan sponsor's plan design)

While plan sponsors (especially in self-funded arrangements) bear the risk of increased costs and higher-than-expected drug use, PBMs help plan sponsors manage the supply chain. procurement of prescription drugs by negotiating discounts with drug manufacturers / wholesalers and pharmacies and administering costs. -saving clinical programs to help reduce drug spending by plan sponsors.

HOW DOES A PBM WORK?

In order to understand the role played by PBMs, it is important to understand the drug supply chain as a whole.

It all starts with the makers of drugs such as Pfizer, Mylant and Valeant developing and producing a variety of generic, branded and specialty drugs. Pharmaceutical companies invest heavily in the research and development of new drugs that can sell for more in the market under patent protection. But they also offer financial incentives in the form of discounts and rebates to wholesale buyers to stimulate demand in the market.

Wholesalers buy directly from drug manufacturers and store / distribute drugs to mail order networks and retail pharmacies across the country. Wholesalers typically sell drugs to pharmacies at a percentage discount off the Average Wholesale Price (AWP) - a benchmark price that in no way reflects the actual price paid to manufacturers. Think of the AWP as the published “list price” suggested by a drug manufacturer knowing full well that no one is actually paying the full list price.

Once in pharmacies, the drugs are distributed to consumers. Patients without insurance benefits buy drugs for the cash price. Those receiving insurance benefits are charged a negotiated price with a discount from the pharmacy cash price. PBMs are used by insurance companies and plan sponsors to negotiate reduced prices for drugs, steer prescriptions towards cost-effective therapeutic equivalents, and to judge the pharmacy claim against the design of the insurance plan. of the patient. The pharmacy typically receives a “dispensing fee” and a reimbursement for the prescription from the PBM while the plan sponsor receives an invoice for the PBM transaction.

HOW IS A PBM PAID?

Plan sponsors typically pay PBMs administrative fees for processing claims, managing clinical programs and drug formulas, etc. But they also make money through price spreads and discounts.

PBMs will contract with a plan sponsor to obtain drugs for a percentage reduction in AWP, but PBMs also have separate contracts with pharmacy networks with different percentages of reduction in AWP. For example, a PBM may contract with a drugstore chain to reimburse AWP less 15% of the cost of a certain drug while offering a discount to the AWP plan sponsor minus 12%. The 3% differential is the “spread” that PBM maintains as the profit of the transaction.

PBMs also receive discounts from drug manufacturers, as they play a direct role in guiding the use of certain drugs through drug formularies. PBMs retain their leverage over drug manufacturers to obtain drugs at reduced prices through these discounts, as they may exclude certain drugs from their formularies or discourage the use of others by placing them in higher cost levels. . PBMs will claim to share some of these discounts with insurance companies and plan sponsors to keep costs down, but they also keep a good chunk of those discounts as profit.

JUST A "LOOK UNDER THE HOOD"

While this is not all you need to know about PBMs and how they work in managing your prescription benefits, we hope this will give you some insight into their inner workings and what they do for your plan. backstage.

As a plan sponsor, you essentially write a blank check at the start of the year and believe your PBM is doing everything in its power to control the ultimate as it negotiates discounts with the networks. pharmacies, directs use towards generics and low-cost therapeutic products. alternatives and eliminate Rx waste by administering clinical programs that effectively match patients with the best drugs.

Work with your Benefits Advisor to determine ways to optimize this relationship with your PBM.