Navigating the Financial Impacts of Pharmacy Benefit Managers for Businesses
Understanding the complexities of the PBM role within the health care landscape sheds light on the significant power they hold in terms of their financial impact on businesses. These entities, tasked with negotiating drug prices, managing prescription benefits and optimizing medication distribution, have become indispensable intermediaries between employers, health plans, pharmacies and pharmaceutical manufacturers. However, while PBMs offer potential cost savings and operational efficiencies, their practices and pricing structures have raised concerns about transparency, accountability and their overall financial impact on the bottom line for employers.
To comprehensively understand the financial impacts PBMs can have on businesses, it is beneficial to dissect their role in the health care supply chain, analyze their pricing mechanisms and examine strategies for optimizing PBM relationships and communication to maximize value and mitigate risks.
Understanding the Role of Pharmacy Benefits Managers
PBMs serve as intermediaries between various stakeholders in the health care industry, including employers, health insurers, pharmacies and pharmaceutical manufacturers. Their ability to have a financial impact on business spreads across their primary functions including:
1. PBMs negotiate drug prices via discounts and rebates with pharmaceutical manufacturers to secure favorable pricing for prescription medications.
2. PBMs administer prescription drug plans on behalf of health insurers and employers, processing claims, determining coverage and setting copayment levels.
3. PBMs oversee the distribution of prescription medications to pharmacies, mail-order facilities and specialty pharmacies, ensuring timely delivery and adherence to formularies.
The Financial Impacts of PBMs on Large Businesses
While PBMs promise cost containment and streamlined medication management, their practices have sparked scrutiny regarding their actual financial impact on large businesses. Key considerations include:
1. PBMs negotiate complex pricing arrangements with pharmaceutical manufacturers, including rebates and discounts. However, the opacity of these negotiations raises questions about the extent to which savings are passed on to employers and employees.
2. Employers pay their PBM fees for managing prescription drug benefits, including administrative fees, formulary management fees and network access fees. These costs can add up significantly, impacting businesses’ overall health care expenditures.
3. PBMs exert control over formulary design, determining which medications are covered and at what cost to patients. Formularies were originally created to promote cost-effective prescribing; however, a lesser known effect of formularies is how they generate hidden profits for the PBMs. Formularies provide an avenue for hiding profits through incentives received by PBMs via agreements with manufacturers to include some drugs over others. This can lead to potential health and productivity implications for employees when they are unable to access medications they were prescribed. Additionally, another prevalent practice among PBMs is known as spread pricing, which has drastic potential for financial impact on businesses’ bottom lines. Payers or health plans are charged a higher price for medications than what the PBM actually pays to pharmacies, and they keep the difference or “spread” as profit for themselves.
4. The rising cost of specialty medications and biologics presents a significant financial challenge for businesses. PBMs often manage specialty pharmacy programs, negotiating pricing and distribution for high-cost drugs used to treat complex, chronic conditions. However, the lack of transparency in specialty pharmacy pricing can inflate costs for employers and employees alike, further contributing to PBM’s financial impact.
Strategies for Optimizing PBM Relationships
Recent lawsuits tying back to the Consolidated Appropriations Act of 2021 have highlighted the need to better understand the complexities of PBM management and mitigate financial risks. According to the CAA, the plan fiduciary is responsible for understanding and ensuring fair pricing, not the broker or PBM. It can be challenging to know how to optimize relationships with PBMs, but some strategies can be implemented to foster mutually beneficial outcomes, while maintaining patients at the forefront of decision making.
1. Demand transparency from PBMs regarding pricing arrangements, rebate structures and administrative fees. Negotiate contracts that include provisions for audit rights and performance guarantees to ensure accountability.
2. Conduct regular competitive bidding processes to evaluate PBM offerings and pricing weighed against the financial impacts to businesses. Benchmark PBM performance against industry standards and peer benchmarks to assess cost-effectiveness and identify opportunities for optimization.
3. Require PBMs to provide patient-friendly resources and education on prescription drug benefits, formulary coverage and cost-saving opportunities. Enabling patients to understand their health care plan allows for informed decision-making, improves transparency and provides an overall sense of ownership of patients’ own medical care.
4. Advocate for legislative and regulatory reforms aimed at promoting transparency, enhancing competition, and addressing anti-competitive practices within the PBM industry. Financial impacts have the potential to affect many industry stakeholders, trade associations and policymakers, so collaboration to drive positive change and protect the interests of businesses and their employees has potential widespread beneficial implications. This lawsuit is a roadmap for remaining “CAA-proof” and calls out the main ways employers can keep from having a similar lawsuit for their company or themselves as fiduciaries:
- Choose a transparent, pass-through PBM.
- Choose a PBM that has no owned pharmacies or conflicts of interest.
- Choose a PBM that has a lowest net cost formulary.
- Choose a PBM and a consultant/broker that the employers’ best interest in mind and is not incentivized by higher cost prescriptions and formulary choices.
Transparency and Partnership
As businesses navigate the evolving landscape of health care management, understanding the financial impacts of Pharmacy Benefit Managers is paramount. Having a partner like AffirmedRx ensures businesses are equipped with the tools, knowledge and support they need to make informed, confident health care decisions. While PBMs offer potential cost savings and operational efficiencies, traditional opaque practices and complex pricing structures underscore the importance of transparency, accountability and strategic partnership. By adopting proactive strategies for optimizing PBM relationships and expecting transparency, employers can maximize value, mitigate risks, understand financial impact and empower their employees to make informed health care decisions in pursuit of better health outcomes and financial sustainability.
