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Employees Should Rethink Pharmacy Benefit Strategies Says Industry Group

Employers Should Rethink Pharmacy Benefit Strategies Says Industry Group

Oct. 13, 2020
A new report from the Midwest Business Group on Health says that middlemen contribute to higher prices.

In order to help employers improve the efficiency and value of pharmacy benefit programs to drive affordability and transparency, the Midwest Business Group on Health recently released a new report.

The report, Drawing a Line in the Sand: Employers Must Rethink Pharmacy Benefit Strategies, is part of MBGH's National Employer Initiative on Specialty Drugs. In 2010, MBGH embarked on a multi-year, employer-led project to address their concerns about the rising costs of biologic and specialty drugs. Project activities offer all employers access to knowledge, benchmarking, best practices and tools and resources at no cost through an online employer toolkit

The report offers a call to action on the key issues and important steps that public and private employers need to take to:

  • Understand how "today's middleman model" contributes to higher costs in the supply chain
  • Identify ways to work with vendors to reduce unnecessary costs and drive efficiency

"As fiduciaries, employers have a duty to be 'good stewards' of how premiums are used to fund care for employees and beneficiaries," said Cheryl Larson, MBGH vice president and primary report author, when announcing the report. MBGH non-profit employer coalitions of 130 mid, large and jumbo self-funded public and private employers, representing over 4 million lives and annually spending over $4 billion on health care.

"Most pharmacy benefit manager (PBM) arrangements are complex, making it difficult for employers to identify the true cost of drugs and all the sources of PBM revenue,” Larson added. “Employers need to know the facts and act to make sure their benefit dollars are spent in an efficient manner and rebates and other revenues are appropriately received."

The middlemen that profit the most from hidden costs in pharmacy benefit contracts are PBMs, the report says. It also includes recommendations on how to identify and address the lack of transparency in contracts including guidance on drug rebates, spread, copay claw backs, drug lockouts and other key areas.

When working together, employers have a great deal of power over health care system reforms, but they need to use their market influence to change the practices of the middlemen. The report offers strategies for employers to help guide efforts to more effectively manage pharmacy benefits and specialty drug costs, including:

  • Use a transparent/pass-through PBM or Pharmacy Benefit Administrator (PBA) model. These contracts disclose all financial flows, including PBM revenue streams, with all rebates and discounts passed onto the employer so true costs (not just price) are known.
  • Offer value-based designs, such as those with no drug formulary. Cost-sharing for this model is based on the value of the drug to the patient and employer – e.g. "lifestyle" enhancing drugs are not covered; convenience drugs are split 50/50 and chronic disease/life-saving drugs have the lowest or no cost share.
  • Use an independent Pharmacy & Therapeutics committee to do an inclusive analysis based on formulary, quality and cost. Many PBM formularies are constructed with a list of drugs that provide them with the greatest discounts or rebates to ensure PBM revenue growth. The retained profits of a PBM makes up a significant portion of drug costs.
  • Exercise full auditing rights in PBM contracts. Most contracts do not have provisions allowing the employer to audit the operational and financial performance of the PBM. As a result, it is important to use full-audit authority to review all PBM practices, including the handoff between supply chain partners and their contracts (what employers can't see now).
  • Require PBM contracts exclude use of copay claw backs at the pharmacy, which impact the legally required pharmaceutical care that benefits the patient and employer, as plan sponsor.
  • Require price protection rebates currently collected by the PBM from the manufacturer are disclosed and that employers receive 100% of these earned rebates.

"Although employers may have to drag the rest of the system along with them, they need to ask and then demand what they want – because it's the right thing to do – for our companies and especially for our employees and family members," Larson also noted.

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