“Transparency” is a widely used buzzword across the PBM industry, but what does it really mean? With so much confusion in the industry, plan sponsors may think they have a transparent solution when they really don’t.
As a result, the plan may not have visibility into key data elements and may end up paying too much for their pharmacy benefits. Further, many think of “transparency” as a financial term; however true transparency, if defined correctly, refers to an operational way of conducting business that provides clear visibility into drug prices and all benefit plan costs.
TRENDS IN TRANSPARENCY
Many plan sponsors admit that PBM transparency is hard to find, yet it ranks high on their list of priorities. In recent studies:
- 35% of employers rated their PBM as “very trustworthy”1
- 63% of employers stated that PBMs lack transparency about how they make money,2
- 8.8% spread pricing was uncovered between the amount billed to plans and the amount paid to pharmacies in an Ohio State Medicaid Report.3
To shed more light on transparency, a recent article noted,
“… a PBM practice known as “spread pricing,” whereby PBMs are reimbursed by health plans and employers at a higher price for generic drugs than what the PBMs actually pay pharmacies for these drugs. The PBMs then keep the difference. Again, a lack of transparency allows this to happen. The payment schedules PBMs generate for pharmacies are kept confidential….”4
To effectively manage your pharmacy benefit costs and ensure you’re getting true transparency, you need to understand how each PBM earns revenue.
WHAT TYPE OF BUSINESS MODEL DOES YOUR COMPANY ALIGN WITH?
Two main PBM models exist: traditional and pass through, with a hybrid solution that claims to be a mix of both. A traditional model uses volume discounts and big rebates to achieve cost savings. This type of model is less transparent about its business practices and requires strict adherence to contract details. A pass-through model passes 100% of all discounts and rebates back to the plan sponsor. In this model, business practices and fees are fully visible and auditable, providing greater transparency.
The following chart outlines the areas where a PBM may be earning revenue. Depending on the degree of transparency offered by your PBM, you may or may not have visibility into these areas. If you are truly looking to lower costs, you should focus on these areas.
If PBM transparency is at the top of your list, then you’ll want to choose a PBM that aligns with the chart’s right side. If you are less concerned with PBM transparency and feel that the way in which a PBM earns revenue is ‘just how they do business,’ then you’ll want to choose a PBM that aligns with the chart’s left side.
There is more to PBM transparency than you think, with more strategies than we can cover in a blog post. Each PBM has its own operational and contractual definitions, that’s why we created an e-book with a PBM scoring checklist.
Learn key differences between how PBMs define transparency and how it impacts your total costs.
- Get real-world examples on the differences in each PBM business model.
- Apply what you’ve learned by using our PBM transparency checklist.
- Score your PBM to see how it rates, or compare PBMs in your proposal.
Why our e-book? Learn how the Navitus pass-through PBM model and fully operational and contractual transparency aligns to deliver results that you can actually see. Plan sponsors can save 10-15% on their pharmacy benefit costs by choosing Navitus as their pass-through, transparent PBM partner solution.
1,2. Toward Better Value: Employer Perspectives on What’s Wrong with the Management of Prescription Drug Benefits and How to Fix it. National Pharmaceutical Council, 2017. www.npcnow.org.
Original source reference: The Year Ahead: Pharmaceuticals & Healthcare In 2019, Fitch Solutions, store.fitchsolutions.com/the-year-ahead-pharmaceuticals-healthcare-in 2019. Accessed July 2019.
3. Ohio State Medicaid Report. State of Ohio, 2018.
4. Pharmacy Benefit Managers and Their Role in Drug Spending, The Commonwealth Fund. www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending. Published April 2019.