Effective Strategies for Managing Pharmacy Benefits

The following are key takeaways from our “Managing Pharmacy Benefits in 2025 and Beyond” webinar, which you can watch here.

Managing health plan pharmacy benefits requires a transparent approach to ensure cost-effectiveness and optimal patient outcomes. Transparency in pharmacy benefits management involves being clear about the costs, understanding the terms of contracts, and knowing what you are paying for each prescription drug. Without transparency, employers may pay more than necessary due to hidden fees or unfavorable contract terms.

One crucial aspect of transparency is understanding how pharmacy benefit managers (PBMs) operate. PBMs often make money through spread pricing, where they charge the employer more than they pay the pharmacy for a drug. This practice can significantly inflate costs without the employer's knowledge. By insisting on transparent, pass-through pricing models, where the PBM charges the employer the same amount they pay the pharmacy, employers can better control costs and ensure they are not overpaying for medications.

Evaluating PBM Contracts

Evaluating PBM contracts is a critical step in managing pharmacy benefits effectively. Employers should carefully review their contracts to identify any hidden fees, unfavorable terms, or opportunities for savings. Key elements to consider include the pricing model (spread pricing vs. pass-through pricing), termination language, and performance guarantees.

Termination language is particularly important. Multi-year contracts often come with penalties for early termination and may withhold rebates. Employers should aim for contracts that allow flexibility, such as one-year agreements, to avoid being locked into an unfavorable deal. Additionally, performance guarantees should cover not just financial aspects but also customer service metrics, such as response times for prior authorizations and call center performance.

Employers should also be aware of carve-out fees when considering moving to a carved-out pharmacy model. These fees are assessed by the medical vendor and should be identified up front to fully understand the financial implications. Audits are another essential aspect of contract evaluation. Ensuring you have the right to audit the PBM’s performance and select your auditor can provide additional oversight and accountability.

Navigating High-Cost Drugs: GLP-1s and Biologics

High-cost drugs, such as GLP-1s and biologics, pose a significant challenge for health plans. While life-saving and effective, these medications can drastically increase the overall pharmacy spend. Understanding the impact of these drugs and how to manage their costs is crucial for employers.

GLP-1s, for example, have seen a surge in usage, partly driven by social media endorsements and their effectiveness in managing diabetes and weight loss. However, the high cost of these drugs can lead to substantial increases in pharmacy spend. Employers should consider implementing strict criteria for coverage and explore alternative funding options to manage these costs effectively.

Similarly, biologics represent a growing portion of drug spend due to their high cost and effectiveness in treating complex conditions. The use of biologics is expected to double in the coming years, making it essential for employers to have strategies in place to manage these costs. This includes leveraging biosimilars when available, which can offer significant savings without compromising patient outcomes.

Choosing the Right PBM Partner for Your Plan

Selecting the right PBM partner is crucial for managing pharmacy benefits effectively. The right PBM should offer transparent pricing, flexibility, and robust clinical programs. Employers should consider both large, well-established PBMs and smaller, more nimble ones to find the best fit for their needs.

Larger PBMs often have extensive networks and negotiating power with drug manufacturers, which can result in better discounts and rebates. However, they may also be less flexible and have less favorable contract terms. Smaller PBMs, on the other hand, can offer more customized services and be more responsive to market changes. Employers should weigh these factors and choose a PBM that aligns with their goals and values.

It's also essential to ensure that the PBM can administer complex plans and effectively communicate with both the employer and plan members. This includes providing clear information about costs, offering support for managing high-cost drugs, and implementing innovative clinical programs to improve patient outcomes and manage costs.

Understanding and Leveraging Rebate Structures

Rebates play a significant role in managing pharmacy benefits, but they can also be a source of confusion and hidden costs. Drug manufacturers typically provide rebates to PBMs in exchange for including their drugs on the formulary. However, focusing solely on rebates can lead to higher overall costs if the formulary includes higher-cost drugs with larger rebates rather than more cost-effective alternatives.

Employers should aim for a rebate structure that prioritizes the lowest net cost rather than the highest rebate. This means selecting drugs that offer the best value regarding both cost and clinical effectiveness. Employers should also ensure they receive 100% of the rebates and have transparency into the rebate arrangements.

Using Clinical Expertise for Cost-Effective Outcomes

Leveraging clinical expertise is essential for managing pharmacy benefits effectively. Clinical pharmacists can provide valuable insights into drug utilization, identify opportunities for cost savings, and ensure that patients receive the most appropriate and effective treatments.

For example, clinical pharmacists can review the utilization of high-cost drugs like GLP-1s and biologics to ensure they are being used appropriately. They can also help identify patients who may benefit from alternative therapies or programs, such as lifestyle modification support for weight loss.

Employers should work with their PBM to ensure that clinical expertise is integrated into their pharmacy benefits management strategy. This includes regular reviews of drug utilization, formulary management, and clinical program implementation. By leveraging clinical expertise, employers can achieve better patient outcomes and manage costs more effectively.

Strategic Approach Needed

Managing pharmacy benefits in health plans requires a strategic approach emphasizing transparency, effective contract evaluation, and the management of high-cost drugs. Employers can ensure cost-effective outcomes and optimal patient care by choosing the right PBM partner, understanding rebate structures, and leveraging clinical expertise.

For help understanding and strategically managing your plan’s pharmacy costs, contact a Hylant advisor.

Related Reading: Understanding Your Fiduciary Responsibilities in Employee Benefits

The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.