Health Care

Employers, payers seek transparent pharmacy benefit models

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More employers and healthcare payers are carving out their pharmacy benefit management as they seek more transparency, business groups said.

Health plans typically administer pharmacy benefit services internally or contract pharmacy benefit managers, which negotiate rebates and discounts with drug manufacturers and pocket an undisclosed share. More employers and payers are contracting directly with PBMs, increasingly working with more transparent managers that pass all the drug rebates and discounts to employers and payers for a set fee.

“You will absolutely see more movement to alternative models as the incumbent PBMs make the situation untenable,” said Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, which helps around 40 private employers and public purchasers manage insurance benefits, noting the unyielding rise of specialty drug costs. “I think there are a lot of barriers for employers to switch, but increasingly, the emerging players are able to meet the needs of employers in the way the ‘Big Three’ don’t.”

Some of the newer players are offering more flexibility in formulary design or retail networks compared to the traditional stakeholders that rely on their size and embedded partnerships, Mitchell added. While the pass-through models have failed to obtain the market share that traditional PBMs have, insurers like Anthem and Centene Corp. look to make up that gap by investing in their own transparent PBMs.

Costco continues to expand its partnership with Navitus Health Solutions, a pass-through PBM model owned by SSM Health that complements Costco’s own pass-through PBM. Navitus recorded $774.1 million in pharmacy benefit management revenue in 2020, up from $602.8 million in 2019 and $494.2 million in 2018, according to SSM financial data.

Ohio plans to implement a state-run pharmacy benefit manager this year after a state consultant found that some of the large conglomerates were overcharging the state up to six times the market rate.

The city of Fort Collins, Colo. self-funded its pharmacy benefits that were previously managed by an insurer. The city paid for actual and projected healthcare claims instead of paying a set monthly fee, which netted it about $1 million of annual savings.

Employers continue to evaluate whether to assign pharmacy management to a vendor separate from their health plans, often favoring PBMs that are willing to be transparent, said Suzanne Delbanco, executive director of Catalyst for Payment Reform, which helps more than 30 employers manage insurance benefits.

“While a “carve-in” solution — keeping pharmacy management under the administration of the health plan — creates administrative efficiency, some purchasers are willing to forgo those efficiencies for the right partner,” she said.

The Pharmaceutical Care Management Association said that PBMs have a proven track record of reducing drug costs for health plan sponsors and patients.

“The health plan sponsor hiring a PBM always has the final say on contract terms,” the association said.

Health plans can complicate the process when payers try to carve out pharmacy benefit management, Mitchell said. They can bog the process down with paperwork and other obstacles, but large employers are willing to make the switch to dull the pain of rising drug costs, she said.

“We hear why these organizations should merge and get bigger, but we have not seen the benefits of it. What we see is less and less responsiveness to customers,” Mitchell said. “(Carving out pharmacy benefits) can be a heavy lift, but at some point the pain of cost increases changes the equation and makes it worth it.”

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