Transparent Management of Pharmaceutical Benefits vs. Traditional (PBM)

Pharmacy Benefit Management (PBM) refers to a third-party service that connects health insurance companies with pharmacies and drug manufacturers. PBMs administer prescription drug programs for over 230 million Americans by doing things like:

• Negotiate prices with drug manufacturers

• Contracting pharmacies

• Operational Mail Order

• Distribution management

• Prescription Drug Claims Processing and Payment

In theory, a PBM saves patients money and helps them access the prescriptions they need. Unfortunately, this is not always the case. The lack of regulation in the US pharmaceutical industry means that PBMs can drive up costs throughout the pharmaceutical supply chain.

Modern PBMs are on the rise. These new models provide the transparency that reduces costs for employers and patients. This article explains what traditional PBM looks like and how transparent models compare.

How traditional PBMs work

The pharmaceutical supply chain is complex, to say the least. As the Commonwealth Fund points out: “Drugs move from manufacturers to wholesalers, to retail pharmacies and finally to patients. Payment is made in reverse, with parts of the refund in the form of discounts and rebates.

PBMs live at the center of this supply chain. Their control over a complex process has led many PBMs to reduce the visibility of their operations in order to increase prices. In fact, prices for widely used brand name drugs have risen more than 120% since 2008.

Here are some ways a traditional PBM keeps costs down:

Holding Rebates Provided by Manufacturers

Part of a PBM's responsibility is to negotiate prices with drug manufacturers and insurance companies. In this process, the manufacturers then pay a reimbursement to the PBMs, a reimbursement that must then be passed on to the insurance plan, in whole or in part. These rebates would allow plans to offer coupons or rebates for out-of-pocket costs for certain prescription drugs.

But many traditional PBMs are not amortized. Then patients are stuck with higher prescription costs.

Recovery for low-cost prescriptions

What if a patient's prescription costs less than the co-payment to fill it? Many traditional PBMs charge the difference in a "recovery". This practice is more common than you might think; customers overpay for their prescriptions 23% of the time.

Keeping Data From End Users

Unsurprisingly, traditional PBMs maintain higher costs due to a significant lack of transparency. They hide details in the pharmaceutical process, including drug costs at each stage of the supply chain. Therefore, end-users such as employers and patients cannot understand why prescription drugs cost what they cost. Instead of accessing prescription drugs based on their health needs, through a fair and clear system, patients must explore their drug options based on the prices available to them.

Transparent PBMs

Fortunately, there are pharmacy benefit management services that operate with a commitment to transparency and fair costs. Instead of differential pricing, reimbursement holdback and recovery, transparent PBMs operate on the basis of actual costs.

A transparent PBM will operate on a "pass-through" model. This means that the PBM undertakes to transfer all discounts and reimbursements to the health insurance fund. In a transfer model, the PBM only earns revenue through a clear administrative fee charged to the carrier. These fees are often charged per prescription request.

As a result, the health plan can better understand and predict your health costs. The patient who obtains a prescription can be sure that the price of the drug is fair.

Instead of retaining end-user data, transparent PBMs share data to power decision-making. Costs often go down when pharmacies, health plans and patients can clearly understand their options regarding prescription drugs. PBM members with real-time information often opt for a less expensive option, saving an average of $130 per prescription.

While traditional PBMs have historically dominated the market, transparent PBMs are on the rise. Understanding the PBM your health plan operates with can go a long way to saving you money.