There was an interesting recent article published by Axios that’s beginning to expose one of the great mistruths in our industry – that drug purchasing coalitions sponsored by the largest benefits consulting firms save money.
As we have been advising clients for years, pricing coalitions sound brilliant in theory but often fail miserably in practice. Theoretically, drugs are a commodity and the greater economies of scale that can be achieved, the lower the cost. The argument continues that discounts will be lower, rebates higher and formularies and contract terms will be centrally managed.
The reality is far different. Pharmacy Benefit Managers (PBMs) price group contracts wildly differently based upon group-specific data. If one organization has high specialty use, their rebate guarantee floors can be much higher than another organization who primarily purchases low-margin drugs. Similarly, if one client had higher mail order penetration, they will be a far more attractive client than another who exclusively utilizes retail.
Not to mention the influence of the group’s copay and coinsurance structure on the consumption and pricing offering. Finally, you have each individual PBM’s appetite to get aggressive on case-specific opportunities in order to achieve revenue quotas.
Drug coalitions can save some clients money, but effectively they homogenize the pricing for clients who individually would draw incredibly different pricing terms (and in the most non-transparent way imaginable). And let’s not forget the slice the consulting house keeps for itself.
Admittedly, not all coalitions are built the same – they can have some utility, depending on their structure or transparency. For instance, we have our own coalition through EPIC, which we have vetted. But for most of my clients I’d suggest to stay far away from these products, which do nothing more than skew the incentives of your previously-unbiased consultant.