The Pharmacy Game

I spend a lot of time thinking about the Pharmacy Benefit Management (PBM) business. The dominant players – Express Scripts, CVS Caremark, and OptumRx – own the vast majority of the business. So, why do I get calls every week from little-known or newer players in the business telling me they can blow the doors off the major PBM pricing?

I have been writing about the need for transparency, and even legislation, in the area of pharmaceuticals (see related posts here and here) and as I focus on this space, I can see the need even more acutely. Pharmacy pricing is a black box and there are a lot of hidden pockets for undisclosed profits.

This month I conducted a bid for a program which until recently, I thought would have been too small for a carve-out. The results were surprising to me. I knew that there would be savings, I suspected in the range of 8% to 10% of pharmacy spend. Competition though, was fierce and we delivered 16% savings to this client. If you consider that pharmacy represents 25% of spend for this account, this reduced their renewal by 4% without impacting plan design.

It may be surprising that every PBM doesn’t define a “generic” drug in the same way. To a novice, a generic is a multi-source drug with the same chemical composition as the now off-patent brand name. Well, no – it depends on which list the PBM uses or whether the PBM includes a particular drug on their generic schedule. Your pricing may seem clear to you if you agree with the PBM to pricing of AWP (Average Wholesale Price) minus 17%, but again no – it depends on many factors including which pricing list is used and how often it is updated. Mail order drug pricing, where a PBM may bulk purchase and repackage smaller doses, is another area for concern.

We will continue to diligently to review this area for our clients, but for employers with unsophisticated advisors – a word of caution is in order. You may be overpaying.

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Comments

  1. avatarMike Muldoon says

    Craig,
    You’re spot on in your comments, however you do not address rebates and claw backs by PBM’s in this extremely illusive world of pharma.
    Pricing transparency is one thing, however the rebate and claw back game is just as damaging to this realm of our industry.
    There are a number of new, transparent solutions in the marketplace and the fact that a BUCA will charge a client to carve out their PBM provider, is a clear indication of the profits they receive from administering this piece of my client’s medical plan.
    In some if not most cases, self-funded employers would be well served unbundling their stop loss and administrative service and paying an access fee to the network which best fits the needs of their employee’s.

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