This summer, we saw Blue Shield of California opt for an unbundled approach to pharmacy benefits management. While this was considered a major departure from standard practices, they aren’t alone in looking for alternative approaches.
We spoke to Javier Gonzalez, Chief Growth and Commercial Officer at Abarca, about why payers are increasingly looking for alternatives to the traditional PBM model.
Can you elaborate on what a virtual PBM is?
Rather than being tied to a single, full-service PBM, the virtual PBM model allows payers to select best-in-class partners to manage individual or multiple pharmacy benefit management functions. For example, a plan could select separate partners to execute claims processing, clinical programs, pharmacy network (retail, mail, and specialty pharmacy), and drug rebates.
The virtual PBM model is powered by a modern, cloud-based PBM platform that serves as its hub and connects and exchanges data between each partner.
Javier Gonzalez
It seems like the industry is making a shift towards unbundled PBM services, which Abarca refers to as virtual PBM. What is driving this change?
Abarca believes that a virtual PBM offers an attractive alternative to the traditional model and may be the future of managing prescriptions. Some large health plans are already deploying this approach.
There are a number of key changes influencing the shift in PBM trade winds. They include competitive concerns stemming from the consolidation of PBM services by large health plans, state and federal regulations, and a move towards consumerism in healthcare.
At the same time, there is growing frustration with the large PBMs because they are owned by health plan competitors. They also force payers to take on one-size-fits-all solutions that not only limit the choices and flexibility plans have but can also cloud costs.
What are the advantages of this type of arrangement?
Centered on a modern pharmacy technology platform, which delivers a more powerful, intuitive, and scalable healthcare experience, a virtual PBM model has the potential to forge new partnerships. It can also align incentives, increase interoperability between stakeholders, improve drug trend management, and reduce administrative costs, empowering health plans to regain control of their member pharmacy experience.
Plans that use the Virtual PBM model have greater visibility over their benefits and data because they have direct line of sight into all aspects of their programs, including the ability to obtain detailed reporting on each aspect of the program. Today, large PBMs often aggregate data, if they share it at all.
The virtual PBM also allows plans to choose the best-in-class vendors for each function and, in some cases, they may choose to manage certain functions in-house.
It also reduces a plan’s reliance on any one vendor. This is an important consideration as the large, vertically integrated PBMs are increasingly competing against their own health plan customers.
In your opinion, what types of organizations are well suited for virtual PBMs? Which organizations benefit more from the traditional model?
The PBM industry is at an inflection point. The biggest PBMs are getting bigger and are putting health plans in a position where they must choose whether they want a PBM partner that owns or is owned by a competing health plan.
A virtual PBM model can be a viable option for any payer with the desire to plug and play different vendors and, ultimately, gain control over their business.
However, that doesn’t mean that the virtual PBM model is an ideal solution for every plan. Contracting for virtual PBMs can be more complex and day-to-day management requires working with multiple entities. That’s why this model works best for larger plans with greater resources.
However, as detailed throughout this conversation, the value to the payer by employing this model is significant. It offers greater flexibility to choose partners, more visibility into data, clarity around the costs of the benefit and minimizing PBM costs. With early adopter health plans already managing this arrangement, we believe the trend will continue to grow.
This is a significant change in the industry. Do you see more structural change coming?
Yes. Plans increasingly seek alternatives to working with PBMs and the traditional PBM model. They are looking for new and different solutions such as value-based contracts, shared risk arrangements, and partners who can deliver the latest technology. That technology includes modern platforms that can accelerate interoperability and leverage artificial intelligence to help deliver a more optimized, seamless, and personalized healthcare experience.
Payers are looking for:
- Alignment with their partners: Culture, values, vision, and business model must align
- Data Interoperability: API First allows plug and play across best-class healthcare partners
- Partners must solve for a need or complement each other in a way that offers more value than the traditional PBM model
- Partners that embrace flexibility and creative design
Recently, there has been chatter about how new entrants to the PBM market will shake up the industry. What are your thoughts on that?
We think anyone who can accelerate innovation, increase competition, provide greater flexibility, and improves client and member service is a good thing. Many of the new entrants are helping transform the next-generation PBM model to be more transparent, interoperable, and accountable.
The largest PBMs, who are facing the strongest headwinds from the market, federal agencies, and states, manage more than 75% of the pharmacy spend in the U.S.. They don’t have incentives or reasons to move quickly to innovate or allow for integration with other companies.
However, plans should keep in mind that it’s not enough to be a disruptor. Implementing and managing pharmacy benefits is complex and plans should choose a proven partner. That partner should be someone that has a tested, modern technology, a track record of delivering an excellent member experience, a history of delivering on their promises, and a desire to create a more interoperable, coordinated healthcare ecosystem.
At Abarca, we see a future where healthcare is seamless and personalized for everyone. And going beyond the traditional PBM model, and empowering payors to find a better way, is a critical first step to delivering more value for patients, providers, and payers.
Photo: zorazhuang, Getty Images
