Using PMPM to Measure True Bottom Line Costs

Posted by Navitus Health Solutions on 1/20/22 10:00 AM | 2 Minutes to Read

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. Instead, plan sponsors should consider focusing on “bottom line costs,” or what you can control to achieve lower costs.

2020 E-book5 PMPM Maze Question Mark

Use per member per month (PMPM) to measure spend versus cost trends, which will more accurately depict your true costs. Doing this ahead of time will take the surprise out of hidden PBM costs, and allow you to leverage lower costs with your PBM. There are six areas that you can use to be your source of truth when choosing a PBM partner. We will focus on three areas in this blog. Check out our e-book to explore all six.

Drug Pricing (Brand and Generics)
If you are only looking at pricing and savings guarantees, you may be missing the big picture. How a drug is defined determines what it costs. By allowing your PBM to directly define and set pricing, you won’t know how much ‘mark-up’ is included in the pricing and can’t effectively manage costs. Note, true pass-through PBMs do not have ‘mark-up’ as their only source of revenue is a set admin fee.

PMPM can help level the playing field, by comparing your all-in costs. If your PBM is reimbursing the pharmacy one cost, but charging you another (as a revenue generator) then it will show up in a higher PMPM (when compared to another PBM who is not).

Discounts (Retail, Mail and Specialty)
Instead of focusing on average wholesale price (AWP) discounts, a better metric is to look at the total invoiced drug cost. If your starting point with one PBM is higher than another, it doesn’t matter what your discount is if you are paying more for a higher cost drug to start with. Some PBMs have multiple ways to price drugs in their favor to earn more spread revenue. Instead, look for a single MAC list that is applied consistently across all channels, and consistent definitions that are defined by a third party like Medi-Span or FirstData Bank.

Here, PMPM is a way to measure discounts as a common denominator across all PBMs in your evaluation.

Formulary Management
Rather than focusing on AWP percentage discount and total rebate guarantees, focus on total starting point cost for the drugs on your formulary. The AWP starting point is determined by the drugs on each PBM’s formulary. Keep an eye out for high-priced drugs with low or no clinical value. These may be on your formulary to get more rebates, but may cost you more in the end.

PMPM is a way to measure consistent drug costs for drugs on your formulary that accounts for all drugs with and without rebates to lower your costs even further.

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: Industry News

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