How to Train Your Dragon; Taking Back Your Pharmacy Benefit

by Ryan Rice of Prism Health Group

With the 2021 plan year clearly visible from the rear-view mirror, now is the perfect time to reflect back on what went well, and what remains to be accomplished in the days and months ahead. For many self-funded plan sponsors as well as their faithful health and benefits advisors, the first few months of the new year serves an ideal time to recalibrate, recharge, and strategize tactics for the new year.

The Pharmacy Benefit. Some folks think the new year is the time to drop that shiny new wellness initiative, or perhaps it might be the right time to roll-out plans for a direct provider contracting strategy. We’re going to focus your attention on one of the fastest growing parts of any given plan sponsor’s overall health and benefits bottom line – the Pharmacy Benefit.

At PRISM Health Group, the goal is to embolden and encourage individuals with tangible tactics that will help you become even more engaged consumers of the pharmacy.

Pharmacy has Become a Very Big Deal - Over the past several years, the sharp rise in pharmacy costs have caused employers, advisors, and vendor partners to find new ways to responsibly mitigate pharmacy costs, while also ensuring a cohesive continuum of patient access and quality care. 

Recent analysis shows that pharmacy represents the fastest growing segment of healthcare expenditure for insurance carriers, self-funded employers, and consumers standing at the pharmacy counter. On average, thirty-three cents ($0.33) of every American healthcare dollar spent today is representative of pharmacy cost expenditures.

Less than two percent (2%) of a given plan sponsor’s participant population represents more than fifty percent (50%) of the overall drug cost. This sharp rise in cost is making it increasingly more challenging to provide a balanced benefit to employees that is both financially prudent, while also representative of a quality benefit.

What's Worse.... the pipeline of newly launches speciality medications that have already received FDA approval, or are in the process of being approved, all target treating highly complex diseased. The average cost of these medication has drastically risen so much in the past 5 years that many self-funded employers are facing the difficult decision as the whether or not they extend coverage. 

How to Train Your Dragon / PBM. 

We want you to imagine that your pharmacy benefit is a Dragon. Now we know what you're thinking, dragons are usually associated as being dark, toothy, mysterious, and terrifying creatures. Much like dragons within the cartoon, what if we told you that your PBM doesn't need to be a feared, scary creature, rather, with the right training you can make you PBM work with you and not against. 

It's not fantasy – in fact, if done correctly, your PBM can become an incredibly powerful asset in the quest for developing a cost effective and quality-based health and benefits program.

Rule #1: Understanding Your PBM and Their Model. It’s important to remember that the model you choose will absolutely impact the result you achieve. Every PBM is different, and some excel at setting forth one particular PBM model over others, and some PBM entities are proficient at putting forth multiple models. It’s crucial to understand the nuance between each model, and ensure you’ve aligned yourself with the best fit for your specific goals.

Most common in the broader marketplace are 3 primary PBM business models: 

1. Traditional (Spread Based) Model - Under a Traditional, or Spread model, the PBM guarantees one flat network discounted rate that the plan sponsor will be reimbursed at, and one guaranteed rebate amount per pharmacy channel that the plan sponsor will be paid rebates. Any overage earned by the PBM in any of these financial rate buckets is retained as spread / margin by the PBM. This model is most common today with the largest PBM entities in the marketplace.
   
2. Fully Pass - Through & Transparent Model – Under a fully pass-through and transparent business model, the PBM may not earn any form of an overage, or spread/margin, between the network discounts paid to the participating pharmacy, nor may they retain any of the dollars received from pharmaceutical manufacturers, i.e., rebates, bona fides, manufacturer administrative fees / credits. Said plainly, this model is based on the plan sponsor paying exactly what the PBM paid the pharmacy, and receiving every dime paid to the PBM from the manufacturer. The only source of revenue to the PBM is their all-inclusive administrative fee. 
3. Hybrid – Less common than the Fully Pass-Through and Transparent and Traditional models, the Hybrid Model is common among administrative services organization (ASO) contracts, carrier-based models, etc. It’s typical for these models to blend some aspects from the Traditional model and Pass-Through model to achieve the preferred result of the PBM / Carrier. The Hybrid model is popular with organizations that wish to retain all or some rebate dollars, and instead underwrite some portion of rebate as administrative credits against medical or similar ancillary costs. 
   

Why Does This Matter? 

When you’re electing to align with any of the above PBM models, it’s critically important to ask yourself whether you have confidence that the terms outlined in your PBM agreement allow you and/or your advisor, or pharmacy consultant the ability to validate the PBM's performance.

Pass-through contracts are more inclined to feature comprehensible terms, clear measurement criteria, and a transparent path for seeking a solution if issues arise. PRISM ensures that you know the model you're tied to, and how to measure and validate the performance at any given point in time.

Prism Health Group is proud to be featured on The Granite List.  To learn more about the work we do, find us here.