Tag Archives: pbm strategy

The Paradox of Specialty Innovation: It Will Save Lives and Bankrupt Everyone, and What to do About It

Is it just me, or did it seem like innovation was predicted to dry up in healthcare as a result of ACA?  With all the statistics of doctors getting paid less, anecdotes of them retiring early, and even stories of pre-med students becoming art majors, I was certain that a dearth of innovation would also be upon us.  I was shocked to discover that the opposite is true: over 5,400 new drugs are currently in late stage testing (the most ever recorded).  Also, in 2012 the FDA approved the second-greatest number of drugs since 1998, and is on track to approve the greatest number ever in 2013.


This silver cloud comes with a shadowy lining, however: the majority of these drugs are specialty drugs.  Specialty drug approvals have now overcome traditional drug approvals, which is also a first.  The paradox of all this innovation is that we are going to be flooded with some pharmaceuticals so amazing that everyone will need to have them—and they might just threaten to bankrupt us all.


Specialty drugs are the Ferraris of pharmaceuticals.  They have more horsepower and niche ability than the sedan, but you pay for it.  They are harder to deliver, trickier to prescribe, and require advanced, specialized pharmacies to provide them (think $2,000 oil change).


Luckily, they have composed a very small portion of our drug spend since forever, but this is no longer the case.  These new innovations are virtually guaranteeing that they will begin to take over as the standard.  Doctors, too, have traditionally been hesitant to prescribe specialty drugs.  This is no longer the case: as physicians are sold to more and more by specialty drug reps, and see the great results these drugs generate, doctors are prescribing them with greater frequency.


So, what can you do to protect yourself?  There are a few things on the radar, all of which will be fleshed out on this blog in more detail if you are interested.  The short answers are as follows:

  1. Design your plan to encourage treatments that graduate from lower to higher cost.  Basically, put in place a preauthorization on any high cost drug.  Next, when someone calls in requesting it for the preauthorization, check to ensure all the lower cost treatment options have been exhausted, and start with the ones that haven’t been used yet.  Then go to the lowest cost of the expensive drugs.  Only at the final step do you “green light” the most expensive treatment.  This seems intuitive because it is, but most plans don’t have this step-by-step solution in place.
  2. Use specialist pharmacists for specialty drugs.  This also seems pretty intuitive, but ensure that the pharmacy that is dispensing the drugs has a specialty pharmacist on hand to double check everything.  They can catch overdosages, mis-diagnoses, or mis recommendations done by doctors who might not be as familiar with either the drug or the condition.  Talk to your PBM about options here.
  3. Dispense 15 day segments when just starting out.   The rockiest part of any new patient-to-drug relationship is right at the beginning.  Many people try a new prescription and hate the side effects so much they only take it once or twice and then toss the bottle, and then your plan is out a bunch of money and your member converts to a healthcare emergency in waiting.  Instead, only prescribe 15 day supplies for the first 2-3 dispenses, and check in with the member every two weeks.  Your PBM should be able to help you with this, or your TPA, but you can make this happen and then you’ll avoid the waste and ensure the program is going to work long term before you commit a ton of resources in meds.
  4. Use Bioidenticals.  A “Bio-Identical” of a specialty drug is similar to a generic of a brand name: it basically does the same thing at a lower cost.  There are differences in “bio-identicals” and “generics” because “generics” are essentially “identical-identicals” and “bio-identicals” are not absolute copies of the original, but are pretty close.  These bio-identicals may not be prescribed as readily by doctors because they will not have all the advertising budget behind them, so you will need to ensure your plan and preauthorization strategy has them written in there and that you ensure you use them before prescribing the full agenda with specialty drugs, that could cost many times more than the bio-identicals.


There you have it.  A quick summary of the most important ways your plan could save millions and millions of dollars over the next couple of years on specialty drugs.

Which PBM is Best?

This is one of the most common questions that empowered[1] self-funded plan sponsors ask when laying out their benefits strategy.  As with other financial vendor questions (e.g.  “Which credit card is best?”), the answer depends a little what you need and how you use it.  However, I can give you some fantastic advice about how to compare them.  What follows is a rough sketch of some benefits of three important PBMs and how they might be able to help your self-funded plan operate better and save money.  This is not meant to be comprehensive, and is meant to be mostly unbiased (disclosures at bottom).[2]

CVS Caremark: Caremark is currently the second largest PBM in the country.  Its main differentiator is that it owns the CVS drugstores, and this is a huge differentiator.  Here’s why: for all plans, chronic illnesses are the top source of cost, and the best answer to this cost is getting your members (1) on mail order drugs and (2) ensuring they take these drugs.  CVS’ abundant drugstores allow your members to get mail order pricing in person to pick up their drugs at any CVS location, which provides choice about how to obtain the meds while maintaining the lower cost to your plan.  Lots of people like to pick up medicine in person, and it’s faster.

Furthermore, every year more of these locations add Minute Clinic operations, which can save your plan a ton by allowing your members to get prescriptions and see physicians at the same location.  CVS is also working to get these physicians and pharmacists tapped in to your members and their pharmaceutical needs to drive up consulting, education, and adherence.

Bottom Line: Caremark could be a great bet for your plan and members if you are in an area with many CVS drugstores and clinics, especially if you have a lot of members with mail order prescriptions.

Express Scripts: When Express Scripts (ESI) bought MedCo, it became the largest PBM in the country.  The combined company is very good at research and outcomes and offers a lot of services that could benefit your plan.  I’ll discuss the ones most interesting to me.  First, they have research centers where pharmacists specialize in a few of the most high-impact positions.  These specialty research centers audit all the claims that are coming through and find gaps and opportunities, and will reach out to your members to correct them, improving adherence and removing waste.

Another area is catching fraud, waste and abuse, specifically with drug abuse.  Claims data files through databases that check the drugs prescribed against what should be expected, looking especially at high street value and addictive drugs, and then puts the information in the plan’s hands and cuts off the members’ ability to abuse the system.

ESI has also negotiated a preferred network of pharmacies that, if used by the members, will deliver focused plan savings, and is a wider network than just using one brand.

Bottom Line: ESI is a thorough PBM option that is exceptionally clinically strong, which helps address adherence issues, treatment gaps, and drug abuse.  They have great discounts, as well.

Navitus: The Navitus name is almost synonymous with the innovation of transparent PBM pricing, which is a solid trend that has increased steadily in recent years.  The Navitus transparency model operates by allowing plans to pay a flat fee per month in exchange for (1) full rebates, (2) no spread or margin paid to the PBM on pharmacy claims, and (3) fee transparency paid to external parties.

It is challenging to directly compare the Navitus cost against the traditional PBM cost, but results suggest the cost savings could be significant because groups recapture money from so many areas.  It is virtually certain that the discounts negotiated by Navitus with the pharmacies are lower than are negotiated by the other PBMs.  Nevertheless, because Navitus does not mark up the discounted price with a spread, it is likely that the group will pay less per scrip than they would with a larger PBM in many, if not the majority, of cases.  Furthermore, a plan will be able to see exactly what the cost structure looks like and will be able to more easily track all its expenditures with the transparent model.

Bottom Line: Navitus may or may not be the lowest overall cost of the PBM options, but you know exactly what you are paying them and where your dollars are going, which is empowering for good decision making.

In summary, this is a very quick and rough assessment of three multibillion-dollar companies, and represents this author’s opinion of the respective strengths of each when you hire them for your members and your plan.  Any time you are bidding, ensure you (1) know your plan’s greatest weakness on the pharmacy side, and (2) interview each of them (and others) with these needs specifically in mind to see who offers the most for your plan.

[1] Empowered plan sponsors are those who have the option in their self-funding arrangement of choosing a PBM.  If you are a plan sponsor who is being prevented from selecting a PBM of your choice, you may want to consider a new arrangement, working with an unbundled TPA instead of a fully bundled arrangement.

[2] I gained this information from Caremark at a free lunch meeting, from ESI at a free conference, and from Navitus on a conference call.  There was no payment for writing this article and no commission or fee paid to anyone who uses these services.  At the time of this writing, none of these companies sponsor Benefits Strategy, either.

Pharmacy Benefit Manager (PBM): Basics and Three Ways to Save Money on Pharma

Buying in a group allows for discounts, everyone knows this.  This is what has caused the creation of the large networks, such as Blue Cross, United Healthcare, and the others, allowing the negotiation of heavy discounts with providers in behalf of patients.  Nevertheless, buying drugs from the local drugstore operates along the same principles: if everyone on a plan buys as a group, employers can get superior discounts.  The same is true for prescription drugs, which led to the creation of networks for buying pharmaceuticals known as Pharmacy Benefit Managers (PBMs).

The PBM is more behind the scenes for most employees; they don’t have a logo on the cards or on most of the materials.  The large carriers use the PBM to handle the pharmacy benefit in their “back offices” behind the scenes as well.  Nevertheless, these companies are huge and drive a large part of your medical spend through the tools and discounts they employ in behalf of your plan whenever a member buys a prescription drug.  The remainder of this post will explain a little more about the basics of the PBM, how it works, and three ways you can use this information to save money.

The best way to illustrate how a PBM works is with the example of a person buying a drug from a retail drug store, such as Walgreens, that would be valued off the shelf at $100 to someone off the street.  Let us imagine that Walgreens bought the drug from the manufacturer for $50, to earn $50 profit if sold at full price.  Let us now imagine that a member of a large health plan that is self-funded through his/her employer goes to buy the drug.  The employer uses a health network for regular claims (such as Blue Cross), but works with a large pharmacy benefit manager (such as Caremark), behind the scenes to negotiate drug discounts on the members’ behalf.  The PBM has negotiated with the drug store to accept payment of $70 for the drug.  The PBM then bills the plan $80, creating for itself a spread of $10.

From here, it gets a little more complicated.  First, the PBM pays a negotiated fee to the administrator for administering the claim.  Second, the PBM pays a percentage of the spread to the administrator as well.  Third, the PBM pays a fee to the health broker off of the claim as well.  Additionally, the manufacturer of the drug, from whom the drug store bought the drug, offers a rebate on the drug.  This rebate is paid to the PBM directly, and then the PBM shares the rebate with the employer and potentially the other parties as well.

As you can see, this can be very confusing.  It’s not necessarily good or bad, but it is extremely difficult to tell where all the money goes and to whom.  This confusion creates opportunity for both PBMs and employers.  The PBM has big opportunity in the smoke and mirrors to engineer tremendous economics and compete against each other.  The employer has huge opportunity in three areas:

(1) Negotiate Harder: There are so many dollars passing around behind the scenes that you should be able to get more dollars returned in per-scrip fees or a larger percentage of the rebate.  Push hard on the PBM and make them compete heavily against each other.

(2) Audit the PBM: There are vendors who audit the PBM payments and the discounts that are being stated.  Using an auditor to keep the PBM diligent in delivering everything it has committed to can generally pay a strong ROI.

(3) Go Transparent: Some PBMs have the ability to do a “transparent model” that allows you to pay a flat fee to them each month, and then pay the wholesale rate, keep all rebates, avoid a spread, and avoid additional hidden fees.  Sometimes the discounts paid to the pharmacy are a little more than the PBM would have to pay if there were a spread, but the employer is able to see everything that is going on and keep all the additional fees, rebates and the like.  Furthermore, specialty drugs, which are growing in cost insanely quickly, have some of the greatest spreads, so a transparent model can potentially help the most with the cost of these types of drugs.

Look back to Benefits Strategy for on deconstructing pharmacy expenditures.  Pharmacy spend represents one of the greatest opportunities for savings for most employers, and is frequently one of the least understood areas.