Reducing Pharmacy Spending Without Compromising Care

May 20, 2021

Prescription drug pricing is a hot-button issue in any discussion of healthcare reform, and no discussion of prescription drug pricing can be complete without examining the role of pharmacy benefit managers, or PBMs.

As described by the Commonwealth Fund, PBMs “are companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers and other payers.” In this role, the Commonwealth Fund continues, PBMs:

  • Develop and maintain lists, or formularies, of covered medications on behalf of health insurers, which influence which drugs individuals use and determine out-of-pocket costs;

  • Use their purchasing power to negotiate rebates and discounts from drug manufacturers;

  • Contract directly with individual pharmacies to reimburse for drugs dispensed to beneficiaries.

PBMs vary, with key distinctions being the distribution of manufacturer rebates and the use of a practice known as “spread pricing.” Critics note that many PBMs retain rebates intended for health plan sponsors and their members, and use spread pricing to overcharge employers for medications.

PBM reform proposals include a requirement to pass through rebates to payers or patients. Some PBMs already do this.

For a full discussion of prescription drug pricing and PBMs, join Alera Group on Thursday, June 17, for “Dissecting Your Pharmacy Spend: Optimizing Your Health Plans, Part 2,” a one-hour webinar on how businesses and their employees can save money on prescription drugs without compromising the quality of care. Scheduled for 2 p.m. EDT, the webinar will feature:
  • Pharmacist Dondi Ballard, RPh, Senior Vice President-Operations of PharmAvail, an industry leader in pass-through pharmacy benefit management

  • Tom Burgess, Executive Consultant at Alera Group Relph Benefit Advisors

  • Ellen Lindahl, RN, MPA, Director of Clinical Review, Alera Group.

During the session, we’ll discuss:
  • Pharmacy trends and focus

  • The role of PBMs

  • Rising players and strategies

  • Best practices

  • Case studies.

Dissecting ‘Rising Drug Costs’ 

In a May 5, 2021, statement prepared for testimony before the U.S. House of Representatives Committee on Education and Labor Subcommittee on Health, Employment, Labor and Pensions, Douglas Holtz-Eakin — president of the American Action Forum, a center-right think tank – made the case that “rising drug costs” is an ambiguous term.

“For example, ‘rising drug costs’ might refer to a narrow definition focused on the sales prices (or ‘list price’) set by drug developers and manufacturers,” Holtz-Eakin’s statement reads. “Alternatively, the problem might not be with all drugs, but instead the high prices of some drugs. Finally, the problem may be the increasing cost of prescription drugs borne by individuals at the pharmacy counter, which has resulted from an increase in high-deductible health plans and greater use of co-insurance, rather than flat copays.”

While much of Holtz-Eakin’s statement may have been politically motivated — the day after its release, American Action Forum launched a $4 million-plus advocacy campaign aimed at defeating H.R. 3 (117), the drug-pricing negotiation bill House Speaker Nancy Pelosi and other Democrats have tied to President Biden’s $4 trillion infrastructure proposal — few would argue that certain drugs skew pricing averages.

Since the mid-1990s, the number of specialty drugs on the market has increased by 1,200%, with another 7,000 new specialty drugs in varying stages of development. New drugs on the market are for treatment related to oncology, neurology, immunology, blood disorders, cardiovascular disease and more. Drugs in the pipeline for 2021-2022 include medication for Alzheimer’s, gene therapy, Duchenne muscular dystrophy and multiple sclerosis.

Such specialty drugs come at a hefty price.

The average out-of-pocket (OOP) cost for specialty drugs is $219.45 — and that’s with 95% of the cost covered by a plan sponsor. Compare that to traditional drugs, for which plan members cover 19% of costs, but at an average OOP expense of only $12.92.

This is where PBMs and Advanced Healthcare Strategies — an Alera Group program of customized, data-driven solutions – can help.

Role of PBMs 

In addition to the functions outlined by the Commonwealth Fund, pharmacy benefit managers administer clinical oversight and monitor fraud, waste and abuse.

There are three basic types of PBMS:
  • Traditional — These have multiple sources of revenue, including rebates, and no administrative fee;

  • Pass-through — Their only revenue is through administration fees, with pharmacy costs and rebates are passed through to plan sponsor;

  • Reinvestment — They offer no rebates, but provide deeper brand discounts.

During our June 17 webinar, we’ll go deeper into the differences between PBMs, highlight the importance of strong clinical oversight and explain the value of Advanced Healthcare Strategies in helping to control the “rising cost of drugs.”

 Real Companies, Real Savings 

The savings PBMs make possible aren’t merely theoretical. During the webinar, we’ll present case studies of companies who achieved significant cost savings through management of pharmacy benefits. Examples of Alera Group clients achieving such savings include:
  • A company that excluded a particular narcolepsy drug, ensured the availability of a clinical alternative and saved $180,000 per year;

  • An oversight vendor’s use of alternative funding and acquisition strategies for high-cost medications that enabled members to routinely fill specialty medications and provided the employer with annualized savings of $141,040;

  • An independent pharmacy consultant who put a client’s pharmacy coverage out to bid and wound up with improved pricing terms from the incumbent carrier and annual savings of $300,000.

To register, click on the link below.


About the Author

Gretchen Day, MPH, MCHES
VP of Health Innovations and Advanced Strategies
AIA, Alera Group

Through her role at Alera Group, Gretchen Day satisfies her passion for public health by working with businesses and their employees to improve workplace culture and influence change in their healthcare delivery system. Ultimately, her goal is to help individuals access better quality healthcare, while advancing innovative thinking to bring about change in the way healthcare is delivered. Gretchen earned her Master of Public Health degree from the Penn State College of Medicine and Master Certified Health Education Specialist certification from the National Commission for Health Education Credentialing.

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