1 Back to BLOG

A View From 60,000 Feet Above The Pharmacy Benefit Landscape

Getting a firm handle on the pharmacy benefit landscape can at times be like flying through clouds. Just as you start to begin to gain clarity another “cloud” comes along to blur your vision.  

These “clouds” can obscure your vision and may come in a variety of forms.  Here are just a few examples.  At a basic level, you may simply wonder if your PBM is delivering what was promised?  Or after selecting a new PBM, the implementation may not seem to be matching up with the agreed upon terms?   As problems surface, you may question whether you should rely on the word of the sales and service teams and whether your internal staff has the skills, training,and experience to navigate your organization through the issues at hand?   You diligently try to understand why claim costs are rising and wonder if claims are being adjudicated according to what’s in your PBM contract?

Pilots can help make a flight more enjoyable by minimizing the turbulence they see ahead.  The "Pilot" in our industry might be an external advisor, auditor, consultant or someone who is very well trained within your staff. Their guidance will be important to your organization.  

PBM auditing and oversight are critical to the operational effectiveness of your plan and should help you better plan your path going forward.  Historically PBMs have not been transparent in their operations.  By periodically reviewing a PBM’s functionality and by performing contract compliance audits, you are transferring the power previously held by the PBM to you as the plan sponsor, safeguarding your financial and membership interests.  Auditing will keep pricing and plan design parameters under control and ensure that claim adjudication does not stray from the agreed upon contract terms.

Your path forward will also be influenced by the type of pricing model used by your PBM as there are essentially three types.  The first is the traditional model where the PBM contract provides the PBM with revenue sources which include but not limited to margin pricing, rebates, formulary management fees, data sales, and retaining portions of rebates earned, etc. With this model, PBM's commonly receive revenue from margin pricing, also known as “spread”.  This is the difference between what the PBM bills the client and what the PBM pays the pharmacy.  The second model type is a transparency model which is similar to the traditional model, but where the PBM has multiple revenue sources, but is willing to disclose each revenue stream.   The third type is a pass-through model where the PBM has just one source of revenue – a flat administrative fee paid either PMPM, PEPM, or on a per Rx claim basis.  Knowing which model your PBM is using should help you better shape your expectations.

When you buy a ticket for a trip, there may be different types of fees.  The less we know about how the fees are derived, the more we wonder if the price we are paying is fair.  In the same vein, it’s helpful to understand the sources of revenue for a PBM.  Client fees is one source and can include base and ancillary administrative and clinical programs fees.  When PBM's were first formed, client fees were the main source of revenue as PBM's were fundamentally administrators.  Pharma revenue is still another source and can include rebates from formulary and market share agreements, as well as rebate administrative fees paid by pharmaceutical companies to PBM's. It also might include revenue from clinical support programs or data sales and pharma-funded research. Retail, Specialty, and Mail “spread” is still another and something for the plan sponsor or auditor to understand.  DIR fees are still another source.  Here, PBM's may charge pharmacies a fee after“point of sale”, typically quarterly. These fees can be a preferred network participation fees referred to as “pay to play”. They are also seen as a “performance” fee based on a pharmacy’s clinical and/or operational performance measures.  Typically, fees are seen with generic drugs.

As you plan your path forward and make decisions related to your pharmacy benefits plan, the trip may prove to be more enjoyable and less costly if someone helps you do the planning that has taken the trip before and understands how to identify the best path forward for you based on your unique set of circumstances.  Please give us a call at 225-927-1509 as you consider what might be the best path forward for your organization.