Independently owned pharmacies are struggling to keep their doors open and if you ask them why, the owner may cite Pharmacy Benefit Managers (PBMs) as the biggest offenders. In excess of 16% of independent or rural pharmacies have closed their doors for good over the past fifteen years according to an article published in the Washington Post in August of 2018. The issue isn’t the rising drug costs that are set by the drug manufacturers, but instead the reimbursement rates set by pharmacy benefit managers that do not cover the cost of the drug from the pharmacy.
For example, let’s say a pharmacy purchases the antibiotic Amoxicillin from its wholesaler for $10 to keep on its shelf. A patient will then come into the pharmacy presenting a prescription for the Amoxicillin along with the patient’s prescription drug coverage card, or insurance card. The pharmacy then types the prescription into their computer and submits the claim to the patient’s insurance, or employer in the case of self-insured employer groups. Only the claim does not go directly to the insurance or the employer, it goes to a PBM. Employer groups outsource certain aspects of managing their health plan to a PBM, so the PBM will maintain this information and decide how much to reimburse the pharmacy. Going back to our example, the pharmacy will receive a message that the PBM will reimburse the pharmacy $8 in order to dispense this Amoxicillin prescription to the patient. This doesn’t even cover the cost, much less leave room for any profit! To make matters worse, the PBM then invoices the employer for the Amoxicillin at an amount of about $80. Where did that $72 go?!?!
This is what’s known as the “PBM Spread” and supposedly applies to the costs of maintaining the health plan and normal PBM operations. Many Americans are getting wiser to the tricks of PBMs and are setting out to change the pharmacy-PBM relationship.
Many of us are sick and tired of hearing about PBMs, but that doesn’t change the fact that something needs to change in the supply chain landscape. There is a shroud of mystery when it comes to the services that pharmacy benefit managers provide but the general consensus includes maintaining eligibility, monitoring the plan sponsor’s plan design, reviewing and paying claims, and reviewing and deciding which medications are most effective for each therapeutic use.
In the spring of 2017, the National Community Pharmacists Association published a resource called “The PBM Story” which briefly mentioned how Caterpillar, Inc. (yes, the farm equipment company) suspected that they were getting the raw end of the deal when it came to their ASO (administrative services only) contract for their self-insured employer group of almost 100,000 back around 2010.
And they were absolutely right.
Caterpillar decided to cut out the PBM middleman and outsource most of the services and began saving tens of millions of dollars every year on prescription drug spend for its employees. By just educating themselves a little bit on the major players of the supply chain network, they were able to cut down unnecessary costs and eliminate waste.
Pain points in the current landscape often lead to innovation and change. Widespread media coverage talks about “PBM Spread” and “Rising Drug Costs” and it almost seems like we are so far from reform that the little guys (independent pharmacies) might lose hope. But there are ways around it. Caterpillar found a solution so we know it exists.
What Caterpillar did was start performing in-house all of the functions that a Pharmacy Benefit Manager usually performs. This is certainly a feasible option but many employer groups do not have the manpower nor the pertinent knowledge to set up an operational PBM. To go this route, an employer group would begin to staff a large team, including customer service representatives, administrative persons for operations, and also clinical staff such as pharmacists, nurses, and even a Chief Medical Officer which is ordinarily a physician. Then you would need to train them as pharmacy benefit management companies do and herein lies the real problem. Oftentimes the training and operation can be the bottleneck to using this technique because it is not transparently clear what a PBM does and therefore is not easily duplicated by just anybody.
Another alternative is to find a turnkey solution to a pharmacy benefit manager and have this solution be your backend and perform all of the necessary activities for you. There are many consulting firms out there that will provide this type of service to an employer group and essentially “private label” their PBM functions to your company and operate seamlessly as your backend.
Contact us today to learn more about how to cut out the PBMs and increase your bottom line.