Mastering Pharmacy Costs: The Power of Strategic Contracts

The Right PBM Partner Is Key to Success

Managing pharmacy costs for covered employees involves a significant challenge because of the pharmacy marketplace's inherent complexity and the large number of available choices. Among the most important decisions your organization will make is choosing the best pharmacy benefits manager (PBM). This post explores some of the issues behind providing the best pharmacy coverage today and considerations for selecting a PBM and negotiating a fair contract.

Pharmacy Trends for 2024

Choosing the right PBM is increasingly important given current trends in pharmacy services, most notably the continuing increases in the list price of drugs. Those increases are primarily driven by specialty drugs and advanced therapies. The arrival of GLP-1 drugs for diabetes and weight loss has led to major increases for many plans, and 11 more weight-loss drugs are in the pipeline. Cell and gene therapies are being introduced, with 17 gene therapies pending approval over the next year or two. One new single-treatment medication for hemophilia carries a $3.5 million price tag.

Data Drives Better Decisions

The most effective process for taking control of pharmacy costs begins with examining your existing plan’s data. Within that data, you’ll find insight to help you answer key questions, among them:

• What is driving your plan costs?
• Are there high claimant trends?
• Gaps in care?
• Plan design opportunities?
• Population health initiatives?
• Chronic condition concerns?
• Member education opportunities?
• Patient steerage opportunities?
• Preventive care engagement?

Identifying the Right PBM Partner

Once you have a better understanding of your data and the challenges for your plan, it’s time to make sure you have the right partner to manage it. An efficient PBM will administer complex programs and ensure that pharmacy benefits are processed and delivered in accordance with your intent. The best PBMs become an extension of your operations as they:

• communicate with plan members so they understand and use benefits correctly,
• implement clinical programs that improve outcomes and lower costs, and
• negotiate on your behalf with manufacturers and others in the supply chain.

Understanding the Pharmacy Supply Chain

To your members, pharmacy benefits are simple: they submit their doctor’s prescription to the pharmacy, which dispenses it and collects any co-pay or coinsurance. However, underlying that simple process is a complex supply chain involving the pharmacy, the manufacturer, the wholesaler, and other parties, all of which influence the cost and availability of drugs.

PBM Partner Options

When seeking a PBM partner, some companies are comfortable with the largest, most well-known national PBMs. Although recognizable, they may not be the best choice because they typically offer traditional contracting. That means they could be keeping part or all of drug rebates, are likely using spread pricing (i.e., the PBM charges more than is reimbursed to the pharmacy) and limiting your ability to customize your plan.

Smaller PBMs generally provide better flexibility and responsiveness to the ever-changing pharmacy landscape. No matter what size you prefer, we recommend working with an expert who can help you evaluate your PBM and negotiate with them.

Watch Out for These PBM Red Flags

As you examine your relationship with your current PBM, be especially wary if any of these situations apply:

• You obtained your PBM through your medical vendor and don't have access to the contract that's driving your pricing.
• You connected with your PBM through your TPA, but you haven’t negotiated that contract directly or reviewed it from a performance perspective after the fact.
• Zero administrative fees are a red flag because nobody works for free, and the PBM is getting paid somewhere.

Evaluating Your PBM Contract

In our experience, the characteristics of the ideal PBM contract include several elements:

• Transparency in pricing, fees and data
• Flexibility to meet your members’ unique issues
• Clinical programs that improve outcomes while lowering costs
• Solutions for managing high-cost drugs and therapies.

Drug Pricing

A pass-through arrangement is generally best, with verifiable guarantees and no spread pricing.

Rebate Details

Again, pass-through arrangements are optimal, along with minimum guarantees.

Administrative Fees

All administrative fees and guarantees should be disclosed and outlined transparently.

Clear Definitions

Payers and PBMs define categories such as brand, generic and specialty drugs differently, so everything should be defined clearly.

Evaluating Your PBM Contract

Whether it’s time to renegotiate your PBM agreement or you’re considering making a change, we recommend starting with your current PBM, using your consultant’s expertise. Even if you have no desire to switch PBMs, it pays to perform a market analysis to ensure your contract is fair and effective. Requesting proposals (RFP) from your current and other PBMs offers an excellent way to consider your options—especially if your consultant performs an independent review.

Finally, never lose sight of the fact that while pharmacy benefits are a cost-based system, they’re rooted in clinical issues. Make sure you have a robust offering for your employees' medications, disease states and conditions. Those clinical outcomes are the reason for your plan’s existence.

More Depth and Insight

The webinar explored the topics discussed in this post in significantly greater depth, with real-world examples to support the recommendations. View this webinar recording and other Hylant Insights Series webinar recordings here to make the most of your employee benefits program.

For help exploring cost containment strategies for your organization, contact a Hylant advisor.

Related Reading: Unraveling the Myth – Does Data Truly Drive Strategy?

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