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Unlocking Transparency in PBM Pricing

Dan Reedy, senior director of pricing and underwriting for Abarca, spoke recently with MedCity News about what payers should consider as they explore new models and press for greater transparency.

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For years, payers, government bodies, and lawmakers have raised concerns over a lack of transparency from pharmacy benefit managers (PBMs). These opaque practices impact payers and members in a number of ways, particularly when it comes to drug pricing.

While awareness of this problem is widespread, the industry has been slow to solve it. Now, as innovative PBM models and unbundling services become increasingly popular, that may soon change.

Dan Reedy, senior director of pricing and underwriting for Abarca, spoke recently with MedCity News about what payers should consider as they explore new models and press for greater transparency. The following interview has been edited for clarity and concision.

Everybody wants transparency in healthcare, but progress has been neither quick nor uniform. Why has it taken so long for meaningful transparency to become the norm?

Meaningful transparency, at the most basic level, means knowing what the pharmacy is being paid and if you are getting a reasonable or bad price. Some payers are pushing for transparency, and some large health plans have achieved it. But it is not necessarily the norm – particularly for smaller health plans and employers. There are a number of reasons for this. For example, large PBMs, in particular, may make opaque models more appealing, even if its business practices aren’t ideal. The complexity associated with PBM implementation may deter payers from making a change. And/or a PBM may be willing to offer pricing improvements to compensate for its lack of transparency. So, even if a payer wants more transparency, it can be incentivized to maintain the status quo.

Would greater transparency lead to better pricing?

Dan Reedy

In an administrative fee model, you know what you’re paying and it’s fixed. In an opaque
spread model, it’s not. Greater transparency should lead to fairer pricing. Currently, some customers may not be paying a lot, and some of them are. Where transparency really would drive savings is for those customers who are paying too much.

Is there a distinction between organizations paying a “fair price” to PBMs and those paying a higher price?

Typically, the ones paying fairer prices have shopped around and explored their options. Even if they go with an opaque option, they’re going to get a better deal.

What can payers do to accelerate the adoption of more transparent models?

They can take a closer look at some of the transparent models announced by PBMs. They can also run competitive procurement processes and ensure that the PBMs promoting these alternative, transparent models are included in the procurement. If you are a large plan or a large employer, you can look at breaking apart the PBM model – just because you go with a PBM doesn’t necessarily mean you need to use their specialty pharmacy, for example.

Going the unbundled route is not an easy negotiation, and managing multiple vendors can be challenging. But, it can lead to more transparency and aligned incentives and give payers more control over their pharmacy benefits. Blue Shield of California is a great example of this type of arrangement.

Speaking of specialty medications, how do these therapies factor into the conversation around transparency?

Without getting too into the weeds, specialty medications have a different type of spread between what it’s costing the pharmacy to get the drug versus what they are selling it for. And that’s where I think it’s very difficult to get true transparency because that’s not something that’s typically revealed.

So much of drug spending is through specialty that even if a pharmacy is keeping a 2% margin on those drugs versus 3% margin, the difference is going to be enormous for larger customers. It is also an area you find players like Mark Cuban’s Cost Plus Drugs that have pushed a value proposition around not being a specialty pharmacy but carrying a few specialty generic drugs that they can offer at a dramatically lower price.

Payers can raise these issues but, ultimately, it becomes a question of how much you want to negotiate with your PBM. However, to benefit both payers and members, I believe it is still worth reviewing during a renewal.

There are a number of innovations like Real-Time Benefit Check that provide information at the point of prescription. In general, what role does technology play in pricing transparency?

The value of Real-Time Benefit Check is in telling the prescriber whether a drug is covered and if there is a lower-cost alternative. But it can also be used to provide information about the price of the medication – and that’s a good way to set member expectations, especially for high-cost medications or cases where the copay is high. Members typically don’t know what their prescription’s price is going to be until they get to the pharmacy counter. GoodRx is great because it lets you comparison shop and find a lower cost option, but it’s not a very seamless experience. Still, I think we’re getting there, and I know many of the PBMs are looking to integrate the GoodRx concept into their transactions which is a step in the right direction.

As you mentioned, last year Blue Shield of California unbundled its pharmacy benefit services and went outside of the traditional PBM model to work with several partners. Where does transparency fit in that kind of arrangement?

My understanding is that Blue Shield of California was not always getting satisfactory explanations around why drugs were priced the way they were. So, transparency is a big part of what they’re trying to do. They chose to unbundle their services to make sure they understand the value being generated by each individual component of the PBM model, and to have control over how each of these components is managed. The other interesting thing about this model is, because they’re working with a number of vendors, if they’re dissatisfied with one they can change without it being nearly as big a lift.

Abarca operates as a transparent organization. What form does that transparency take and how does it impact relationships with plans, providers and consumers?

We want to build long-term business relationships with our customers and create mutual value. Our view is that transparency is the best way to do that–it allows us to show customers that we are working with their best interests in mind. So, transparency is at the heart of everything we do. We also give our customers a lot of control and the ability to make their own

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