Avoiding the Surprise of Hidden Costs

Posted by Navitus Health Solutions on Apr 23, 2020 3:45:00 AM

When it comes to pharmacy benefit managers (PBMs), knowing their business model and revenue source will help you choose the right PBM and make informed benefit plan decisions. Each PBM is different, and its business model can impact your bottom line costs.

Depending on its model a conflict of interest may exist and influence its business decisions on your behalf. Conflict of interest occurs when your PBM may be earning revenue from its purchasing and reimbursement activities administered for your plan.

If you are looking to lower your Rx benefit costs, you are going to want to avoid any ‘surprises’ or hidden costs that can occur when a conflict of interest is present.

2020 E-book5 PMPM Blog Image 4

Let’s think about this in terms of buying a shirt at a department store.
Each one has a price tag with cost, and perhaps a discount because it’s on sale. You have a budget in mind, so you pick out five shirts calculating what you think the total cost will be. Then you get to the register only to find that only some of the shirts qualified for the sale price and you have to put some back (because keeping them would put you over budget).

Hidden costs can also come from when the shirt cost is marked up before a discount is applied. A 50% off discount on a $100 shirt is still more than the same shirt at $50 with a 10% discount. The same applies to ‘coupons and rebates’ that promise $25 off of the $100 shirt. What if there was a way to buy that same shirt for $50?

The same applies to some PBMs, what you think you are paying for may change once you get the invoice. This is complicated further with rebate guarantees (think coupons and rebates) and savings guarantees (think 50% discount applied to a marked up item) and are only as good as the final total price you pay.


Comparing one PBM to another is very complex. To add to it, many metrics are available to help you understand if you’re getting a good deal or not. However, if you focus on the wrong ones you may misinterpret the true cost. This could mean you don’t know what you are paying until it’s too late, when you receive your invoice.

Most PBM evaluations focus on rebate or savings guarantees, or the cost of a single drug but these can serve as a decoy to distract from the actual costs. Focusing on the wrong metrics, may detour you from achieving your goals with your PBM contract. Instead, plan sponsors should consider focusing on “bottom line costs,” or what you can control to achieve lower costs. 


Using per member per month (PMPM) or per member per year (PMPY) metrics allow you to measure your total pharmacy costs since it factors in all six PBM contract areas that contribute to your bottom line expenses. That way you have no surprises about what you’re paying. Once you understand your costs, you can manage them more effectively.

PMPM often gets lost in the shuffle of PBM contract negotiation,
but it can be your most valuable tool in managing pharmacy costs.

LEARN MORE IN OUR E-BOOK:2020 E-book5 PMPM Cover Angle View
How to Spot Decoy Metrics to Lower Rx Benefit Costs


  • Rebates (Retail, Mail and Specialty)
  • Discounts (Retail, Mail and Specialty)
  • Formulary Management
  • Drug Pricing (Brand and Generics)
  • Clinical and Utilization Management
  • Administrative (Admin) Costs


Learn More!

Topics: Insider

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