A Clear View of PBM

08/03/2023 3:30 PM | Jennifer Hatmaker (Administrator)

Submitted by: Bill DiLemme, Director of Sales & Marketing, MC Innovations

What does transparent mean to you? Does it bring up images of crystal blue water gently lapping soft sand? Does it make you think of the water bottle you are probably drinking out of right now? What if you thought about transparency as the pricing model in your pharmacy benefit management? That’s right. A transparent pricing model in PBM!

For far too long, pharmacy costs have been based on Average Wholesale Price, or AWP. But have you ever stopped to think about who sets the wholesale price of pharmaceuticals? If you did, you would have a lot to think about. Let’s start the process with a much more familiar pricing model…a new car.

New car shopping is fun, right? The new car smell and knowing that you are sitting in a car that very few people have ever driven are quite a rush. But that is where the fun ends. To own that new car, you must go through the buying process. And most of us are sure we will be coming out on the losing side of the deal.

It is widely known that the car dealer that sells you a car is a middleman. He is the step between you, the buyer, and the manufacturer. And as middlemen, they are eager to get their share of the profit of the sale. In the car world, that means they buy cars from the manufacturer at a discounted price, raise the price to the consumer, then offer “specials” to make people believe that they are getting a deal, or saving money on the vehicle of their choice. By the end of the sale, the dealer has, if not more, doubled their money.

The same concept holds true for workers’ compensation programs. Pharmacy Benefit Managers (PBMs) are third-party companies that function as the middleman between insurance providers and pharmaceutical manufacturers. PBMs create a list of approved prescription drugs under a benefit plan, negotiate prices with manufacturers, process claims, create pharmacy networks and conduct drug utilization reviews.

Beginning in the 1960s, insurance companies offered prescription drugs as a health plan benefit. As the demand for drug benefits on health plans grew, PBMs evolved to support workers’ compensation mail-order drug programs. By 1990, the service expanded to the retail pharmacy.

It was then that PBMs were created to help insurers contain drug spending. PBMs originally decided which drugs would be offered in formularies and administered drug claims. The 1970s saw some changes in the industry and PBMs began to adjudicate prescription drug claims. In the 1990s, drug manufacturers began acquiring PBMs, leading to concerns about conflicts of interest which led to federal orders for divestment from the Federal Trade Commission and sparking a trend of mergers and acquisitions within the PBM field.

As health care costs rise, the role of PBMs as prescription reviewers has come under fire. This is due to the cost of prescription drugs and the effects on consumers. The cost of insulin, for example, has become a hot topic news story as the price for this drug has increased over 600% in the past 20 years. This has many patients having to ration medicine when they are not able to afford rising copays.

At this point in the field, it became clear that one way many Pharmacy Benefit Managers earn their profit is through administrative fees charged for their services, through spread pricing – that is the difference between what is paid to pharmacies and the negotiated payment from health plans – and shared savings where the PBM keeps part of the rebates or discounts negotiated with drug manufacturers. This has caused concerns with PBM business practices, focusing on transparency to consumers regarding rebates and reimbursements.

A Transparent Pharmacy Pricing program allows clients to better understand both drug prices and the often-undisclosed associated TPA fees. When thinking in terms of buying a car, an example that parallels the PBM situation, we often don’t know what the dealership paid for a car, making it impossible to determine the quality of any deal struck. If you would like more information about Transparent Pharmacy Pricing, please contact MC Innovations. 


About MC Innovations
Since 1996, MC Innovations has helped clients deliver the best possible risk management programs at the lowest cost by employing industry best practices, early-warning detection and analysis, continuous improvement programs and transparency of results. As a minority-owned business, we can unlock new opportunities for industry providers such as third-party administrators and insurance brokers and can offer new and differentiated services to help them retain existing clients or win new business. Above all, we serve as advocates for our clients, when our clients are successful — we’re successful. For more information about MC Innovations’ risk management solutions, including Pharmacy Benefits Management, contact our Director of Sales & Marketing, Bill DiLemme at bdilemme@mcinnovations.com.

Submitted By:
Bill DiLemme, Director of Sales & Marketing, MC Innovations
bdilemme@mcinnovations.com   

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