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frank.stichter@strategichpc.com

I recently wrote an article on Prescription Drug spending and Pharmacy Benefit Managers (PBM) and where brokers fit into the marketing and selection process of a PBM for their clients.  I recently had the opportunity to actually work with another employer and examine their prescription drug program and costs.  What I found about their drug spend, and how much money this group has spent on behalf of their employees, only to uncover/discover that other entities had prospered from it is remarkable.
This employer is probably typical of most mid-sized, partially self-funded employers in the U.S.  Their plan is unbundled, i.e. they utilize a large Third Party Administrator (TPA), a regional PPO network, stop loss, and an independent PBM (although I’m not sure who selected the PBM – their broker, the TPA, or another related vendor).  Their drug spend for their company employees – approximately 235 employees – was approximately $626,500 in a 12 month period or $2,666 per employee per year.
I actually received their claims data and was able to reprice each prescription claim with a different PBM – one that relies on transparency and the lowest ingredient costs.  The repricing assumed the exact same drug (no substitutions), the same dosage and the same quantity.  The savings was over $103,000!!  How can this be?
As I mentioned in the previous article, PBMs make money in a variety of ways.  Spread pricing, fees, and rebates to name a few.  In this case, the profit to the PBM at the expense of the client was exorbitant, and the employer didn’t know any different.  Someone recommended this PBM to the employer and the employer trusted that the PBM was competitive based upon that recommendation.  What the employer didn’t know was that a portion of their costs was not only an extraordinary profit to the PBM, but also to other third parties.  Without transparency and disclosure, how would the employer know?
As a former broker, I have been in situations where PBMs have repeatedly asked me how much of the rebate do you and the insurance agency desire?  The PBM would keep some of the rebate, pay the Agency some of it, and pay the remaining rebate to the client.  The PBM would charge dispensing and administration fees to the client, and keep the spread between what they purchase the drug for and what they would charge the client.
It’s extremely important to ask the right questions and have a basic understanding of the PBM that you are implementing.  It’s equally important to know that your broker and/or TPA is aligned with the best PBM available to you and not because they are incentivized by being compensated by that PBM. It’s not about how big their network is; it’s about the elements that you don’t necessarily consider or know about. You broker should be knowledgeable and examining these elements, but more often than not they don’t do so. For a small to medium size company the differences can be extraordinary.
Unfortunately the brokerage business is one which is over-promised and under-delivered. You don’t know what you don’t know.