In the United States, over 75% of individuals younger than 65 are covered under their employer’s plans—primarily through cost-sharing payments. However, health plan coverage still requires workers to pay upfront costs. Payment amounts vary wildly from one health provider to another due to the different policies imposed by insurance companies. (1)
Because of the tasks involved in lowering healthcare costs, companies often hire a pharmacy benefit management company (PBM) to perform various tasks. These third-party organizations are responsible for improving healthcare access and services while keeping costs manageable.
Employers must choose the right company to optimize workers’ health benefits. Below, you’ll find four crucial considerations in evaluating PBMs.
- Alignment of needs and PBM offers
As with choosing any service provider, your company must set clear and actionable objectives beforehand. Once you’ve decided what you want from a pharmacy benefit manager, you can compare their offers with your organizational needs.
Ensure that the PBM company you choose aligns with these goals so that you know what to expect and maximize the available benefits. For instance, if you’re running a construction company, check how the benefits manager handles occupational injury cases. Doing so allows you to strike a perfect balance between managing costs and providing the best healthcare plans to your staff members.
- A straightforward business model
Benefits managers earn from the fees they charge in administering their services. However, some companies receive flak for questionable practices, including non-disclosure on discounts and rebate policies. (2)
Before 2018, some PBMs were under fire for including gag clauses in their contracts with drugstores. Pharmacists were prohibited from informing covered beneficiaries if the drug cost was lower than the insurance co-pay price. However, the practice has since been legally banned so as to promote transparency. (2)
When choosing the best benefits manager, the company must be transparent in its charges and prices so that you know your company isn’t being shortchanged.
Generally speaking, there are three types of operating models utilized by PBMs, and these dictate the kinds of services they provide, as discussed further:
- Traditional: The PBMs adopting this business approach are often less transparent and have more complex contract details and specific plan inclusions.
- Pass-Through: Companies under this model are typically more flexible and transparent. They pass on all rebates and discounts to their plan sponsor. Charges reflect only the amount paid for by the PBM with no hidden fees.
- Hybrid: As the name implies, these companies mix the elements of the two business approaches above.
- A transparent contract
Before signing the contract, review the agreement and understand the terms well. Some contracts offer a full range of services, while others are flexible in that clients can select the services they need.
Check the potential financial implications of your plan to switch to a PBM. Review your average annual medical expenditures, and see how a benefits manager can help reduce or increase your allocation. Ask whether the benefits manager is transparent in reporting costs or if regular audits can be done.
Look at the definition of terms and analyze the conditions of coverage. Doing so is one of the most crucial considerations in selecting the best PBM. For instance, see how the manager can provide broad access and effectively reduce medication costs to sick workers, particularly those who need specialized care. (3)
Ask for an updated formulary, make sure there are no hidden costs, and focus on administrative fees as this is the lifeblood of most PBMs. More importantly, check if there are specific caps and excessive or unreasonable coverage restrictions.
- Comprehensible terms
As a business owner or plan sponsor, it’s crucial to be familiar with the terms used in PBM agreements. Below are some of the most common definitions you’ll encounter.
- Clawbacks- describes the situation where patients pay higher costs to the PBM or plan sponsor, such as employers like you or a health insurance provider.
- Generic dispensing rate- measures the rate at which the PBM has administered generic drugs as compared with the total prescriptions.
- Spread pricing- refers to the difference between the amount paid to drugstores and the PBM charged to the client. (2)
- Shared savings– occurs when the PBM keeps the proceeds from discounts and rebates approved by the pharmacy or drug manufacturer
If you’re not familiar with medical and insurance terms, consider hiring a consultant to study the contract terms and ensure it aligns with your requirements. In some cases, you can ask the expert to negotiate with the benefits manager if needed.
Taking heed of these tips can help you conduct a comprehensive evaluation. Knowing which business approach and metrics you need to be looking out for in a pharmacy benefits manager is crucial.
One of the best ways to optimize your PBM agreement is by going through all of the services offered by the company. Look for a manager that brings the most value, allowing you the best healthcare access at the most reasonable costs.
- “Pharmacy Benefits: New Concepts in Plan Design”, Source: https://www.ncbi.nlm.nih.gov/books/NBK559765/
- “Pharmacy Benefit Managers”, Source: https://content.naic.org/cipr-topics/pharmacy-benefit-managers
- “Picking the right pharmacy benefit manager can lower prescription drug costs”, Source: https://www.benefitnews.com/advisers/opinion/how-to-pick-the-right-pharmacy-benefit-manager