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The average American spends approximately $1,200 a year on prescription drugs and those with chronic or severe medical conditions can pay upwards of $50,000 or more per month for specialty drugs to treat conditions such as rheumatoid arthritis or cancer, for example.
With a single dose of a specialty drug, a patient can meet both the deductible and out-of-pocket maximums, leaving the insurance company or self-funded employer to foot the remaining bill. While these high-cost claims represent only approximately 10 percent of the population, they will often account for 90 percent of an employer’s pharmacy spend.
Rising prescription drug prices are an ongoing topic of debate in the U.S. and a continued source of frustration for employer-sponsored health plans. Employers often report feeling powerless to control pharmacy drug costs and say they are leery to make plan changes that could negatively impact quality of care or employees’ perception of benefits.
The good news, however, is that you can help lower your drug spend if you understand how pharmacy benefits are managed and how to get the most from drug rebates.
A Pharmacy Benefits Manager (PBM) is a third-party that manages prescription benefits on behalf of insurance carriers, employers and other payers.
If you have a fully insured health plan, your pharmacy benefit is likely integrated with your medical benefit, so you can’t choose your PBM separately. Instead, you will need to choose a health plan that includes a pharmacy benefit that works for you. A trusted advisor can help you understand which plan designs offer the lowest cost drugs.
If you are self-funded, however, you have the option to choose your PBM. The PBM generally processes prescription drug claims, develops and maintains the drug list (formulary), contracts with pharmacies, and negotiates with drug manufacturers for discounts and rebates.
Rebates are a partial refund that the drug manufacturer gives to the buyer for the cost of the medication. There’s a lot of money in drug rebates and very little transparency in the process. The likelihood that you—the employer who purchased a health plan—are seeing all the rebate money is pretty slim. Rebates are usually given to the pharmacy or medical facility dispensing the drugs.
PBM contracts can be challenging to decipher and it can be difficult to know where to turn for help. Some PBMs will claim to use a full pass-through model that gives the employer all the rebates, but in the fine print the PBM will receive what appears to be a kickback or bonus from the drug manufacturer that is disguised as a “clinical research fee” or similar term.
Other PBMs have their own specialty pharmacy to help lower specialty drug costs, but that can be a double-edged sword where you don’t know the real price of the drugs because the PBM still receives a pharmacy rebate. To further complicate matters, some brokers (nearly 75 percent) take a commission on every prescription filled, creating a conflict of interest when negotiating prices on behalf of you and your employees.
Fear not, transparent PBMs really do exist and it’s possible to negotiate a contract with the lowest possible drug costs and with rebates that are passed through to you. An ethical broker can help you find the right PBM in the murky, complex, and sometimes purposely obscure, pharmaceutical world.
Prescription drug prices aren’t dropping anytime soon, so controlling the pharmacy spend is a good cost-savings tactic. Self-funded groups need to be proactive about partnering with brokers they can trust to negotiate the most beneficial PBM contracts available and fully insured plans need to read the fine print on their health plans.