Since their inception in the 1970s, Pharmacy Benefit Managers (PBMs) have played a crucial role in the healthcare industry. In the early days, PBMs primarily performed claims processing and pharmacy network management. This allowed payers to provide efficient and affordable prescription drug benefits to their members.
As time progressed, PBMs took on formulary management, utilization management, rebate contracting functions and became providers through building/acquiring mail service and specialty pharmacies. Many of the dominant PBMs have expanded through vertical integration with retail pharmacies, payers, rebate aggregators and provider services.
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Leslie Lotano-Saba Leslie Lotano-Saba RPh, MS leads the pharmacy practice at AArete, a healthcare consulting firm providing profitability and quality solutions to payers.
Some payers and PBMs are owned by the same parent companies, and in fact, they make up a large share of the market — something that has attracted scrutiny. The complicated relationships between these large, combined entities make it important to build a working partnership that aligns on the goals of cost-effective, high quality and accessible care.
The pain points
As payers work to optimize their PBM partnerships, the complexity of their agreements makes it important to increase the understanding and apply best practices to ensure transparency and value.
The thought of switching PBMs can be overwhelming and often immobilizes payers instead of evaluating opportunities that would drive a more sustainable sound partnership.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
In many ways, the often-complex payer-PBM dynamic mirrors the complexity of the overall healthcare industry; but there are ways to reassess your partnership with PBMs and create mutually beneficial long-term relationships.
The course of action
Payers need PBMs as partners to provide core critical functions. To optimize their relationship, payers can take several key steps.
- Require data and transparency. Automate processes for receiving claims and other pharmacy program data on a regular basis
- PBM claim extracts contain hundreds of data elements that provide a wealth of information.
- Ensure all data elements used for pricing, guarantee exclusions, clinical edits, overrides, drug definitions, etc. are included on claim extracts
- Require PBM to provide comprehensive prior authorization, real-time benefit check, clinical program and other clearing house data elements and reports
- Leverage data to support oversight, clinical programs, and quality improvement initiatives
- Clean up the PBM contract. Reduce confusion and improve transparency.
- Definitions should be front and center without obfuscation
- Avoid sections that contradict each other.
- Performance guarantees should be clearly defined and objectively measured (not self-reported), focused and weighted to align with business priorities
- Require details for any sub-delegated services
- Audit language that minimizes restrictions and clearly defined timelines
- Market check language that permits independent analysis and actions if contract is no longer competitive
- If there are multiple amendments over multiple years, consider creating a new agreement
- Up your oversight game. Go beyond the minimum standards for delegated entities and dig deeper into PBM performance.
- Meet routinely with the PBM account management team
- Perform internal analysis to validate certain PBM self-reported metrics
- Build cross-functional teams to work with the PBM (i.e. member engagement, IT, Finance)
- Track open issues and assign ownership and due dates
- Use an independent firm for comprehensive audits of pricing, performance guarantees, rebate guarantees and market checks
- Perform monthly review of delegated programs such as prior authorization and perform annual effectiveness/ROI evaluations
- Take control. Prioritize and demand an active collaboration with the PBM, regularly identifying areas of opportunity and apply pressure when needed.
- Evaluate all contract “levers” and the interplay to better understand the give and take and impact on overall performance
- Evaluate other pricing strategies such as National Average Drug Acquisition Cost (NADAC) instead of Average Wholesale Price (AWP) and lowest net cost instead of rebate maximization
- Consider unbundling services to gain flexibility in using other vendors
- Evaluate insourcing certain functions to gain more control and less dependence on the PBM
Prioritizing the PBM relationship is critical for payers to provide competitive, cost-effective pharmacy benefits. It takes focus, creativity, and effort but a good partnership leads to better performance and overall satisfaction.
Overall, it is most important for payers to know they have options and are empowered by data to make decisions. There are several new PBMs and technology companies disrupting the pharmacy benefits management space and differentiating themselves with innovative and transparent approaches to managing drug costs, improving quality, and delivering a better member experience. If the current PBM isn’t an effective partner, then it’s time to confidently look for something new.
Photo: Gerasimov174, Getty Images
Leslie Lotano-Saba RPh, MS leads the pharmacy practice at AArete, a healthcare consulting firm providing profitability and quality solutions to payers.
