One way that employers have been trying to fight the spiraling cost of drug costs for the employees covered by their group health plan is to involve a pharmacy benefit manager.

However, the largest PBMs in the nation have come under scrutiny for their opaque pricing practices and how they use drug company rebates, which don’t often end up benefiting the end user of medications – your employees.

Three PBMs control more than 80% of the market and they all also have business interests in other parts of the health care supply chain, including owning their own retail pharmacies or they are owned by a larger health insurance company.

They have been accused of having conflicts of interest and being too secretive about how much they themselves pay for the drugs being prescribed to health plan enrollees.

That said, there are a number alternative PBMs expanding in the market that take a different approach to controlling drug costs for your employees.

PBMs are third party administrators of prescription drug programs that are linked to health coverage. They are mainly responsible for:

  • Contracting with pharmacies for network services,
  • Negotiating discounts and rebates with drug manufacturers,
  • Developing and maintaining the plan’s list of covered drugs (a formulary), and
  • Processing and paying prescription drug claims.

When shopping around for a PBM, consider looking for one that has the following attributes:

  • Transparent contracts and payment arrangements

Watch out for contracts that are not transparent in terms of the money flow and whom discounts and rebates are dealt with. Sometimes contracts can be overly complicated, so as to hide the PBM’s revenue streams in the relationship.

You should be on the lookout for contracts that are opaque concerning:

Rebates – These are a form of price concession paid by a pharmaceutical manufacturer to the PBM.

Spread pricing – This occurs when the PBM keeps a portion of the amount paid to it by the health plans or employers for prescription drugs instead of passing the full payments on to pharmacies.

Look for a PBM that has a clinically driven business model, instead of one driven by revenues from pharmaceutical rebates and other non-transparent income streams.

These alternative PBMs will often focus on carving out the pharmacy benefit from the medical benefit, and they focus on providing superior service with less emphasis on profit margins.

  • Performance incentives

Many new PBMs have a pay-for-performance business model, which rewards the PBM for the results in yields.

This model can bring more transparency to the PBM’s operations and holds it accountable for the quality of its services and the savings it can achieve for the employer and its workers.

These contracts may also have provisions for reducing the PBM’s take if prescription drug spending surpasses a guaranteed maximum. Pay also depends on performance guarantees that are tied to better health outcomes and lower costs.

  • Better coordination

New PBMs are also taking a more hands-on approach to drug spending, particularly by working with pharmacists to coordinate drug care among a patient’s doctors, like primary care doctors and specialists.

The pharmacists that the PBM contracts with are the fulcrum of the drug supply chain and have insight into what all a patient’s doctors are prescribing them. The pharmacists and PBM should understand a patient’s condition, symptoms, medical history and any other medications they use, in order to help ensure each prescription dispensed is medically appropriate.

It also puts the pharmacist and PBM in a better position to bird-dog medicine abuse or over-prescription of medications. Health plan enrollees benefit from this type of coordination because it can:

    • Reduce the risk of side effects and adverse drug reactions.
    • Improve treatment and health outcomes.
    • Improve their quality of life.
    • Reduce the need for repeat visits to the doctor.
    • Lower the risk of hospitalization.
    • Reduce the risk of taking a medication that offers little or no benefit.