Feel Like you Need a Translator to Understand Your Pharmacy Costs?

Six Questions to Ask When Evaluating Your PBM

By Jeff Bak  

The C-suite is taking a closer look at pharmacy benefits managers (PBMs). Healthcare costs continue to increase, and when employers ask their PBM partner about solutions, they are often confronted by an alphabet soup of complex terms including AWPs, rebates, and more. It feels like companies need a translator just to understand their pharmacy costs. Today, the three largest PBMs, Express Scripts, CVS Caremark, and Optum Rx, control about 80% of the market and savvy businesses are asking more questions while exploring alternatives. 

We are seeing this play out in real time. A recent class action lawsuit against Johnson & Johnson accuses J&J of breaching its fiduciary duty under the Employee Retirement Income Security Act (ERISA) to prudently manage employee benefit plans by failing to adequately negotiate lower prices for prescription drugs, which cost employees millions of dollars. While J&J is the named defendant, the lawsuit directly cites the failure of J&J’s plan fiduciaries to negotiate its PBM contract on behalf of employees, seek prudent alternatives, and identify that its benefits consultant was potentially financially conflicted. We believe this case will serve as a wake-up call for employers and will lead to more businesses evaluating their PBM. Tyson Foods recently replaced CVS Caremark with the PBM upstart Rightway, making them one of the first Fortune 100 employers to walk away from one of the big three PBMs. 

In my role as the CEO of a health plan for self-funded employers, we have helped hundreds of companies evaluate their PBM, and we are seeing businesses opt to engage independent pharmacy consultants and to use innovative alternatives like Liviniti, Rightway, True Rx and SmithRx. Other companies are simply asking more questions of their existing PBM partners. Businesses that proactively evaluate their PBM partners often experience greater clarity and significant cost savings. However, navigating this space is not without challenges.  

We recommend all employers ask these six questions of their PBM partner. 

1.) Is the PBM truly transparent and do you have the right to audit performance? 

Black box, or hidden, prescription drug pricing is unfortunately too common, and employers have grown wary. Employers pay PBMs to negotiate with pharmacies and drug manufacturers and to work with employees and their families in administering their pharmacy benefits. Compensation can include a combination of rebate sharing, pharmacy spread pricing, exclusive use of PBM-owned or “vertically integrated” pharmacies, administrative fees, and direct and indirect remuneration (DIR) fees. With such a complex supply and delivery system, it’s critical for employers to understand how their PBM is compensated beyond the convoluted payment terms, and most importantly, to maintain audit rights to ensure that performance commitments are met. 

This is not only critical for a business’ bottom line, but for managing employee healthcare costs. With nearly half of adult Americans experiencing healthcare debt today, the unfortunate reality is that many people must choose between filling their medications and meeting other necessary family expenses. Regular audits can help reduce administrative costs, saving your employees money in the process.  

2.) Is the RFP process independent, robust and aligned with your plan’s objectives? 

An employer’s RFP process is an opportunity to reflect the objectives of the plan and to clearly document expectations for transparency and accountability. PBMs are not cookie-cutter and what might work well for a retailer in the Midwest often differs from a comparable employer in Florida. 

Employers should expect brokers and consultants to identify multiple viable PBM options, discuss how they address transparency and oversight, and help determine which is the best fit for the health plan. This process may mean you maintain your current partner if it’s the right decision for your business and employees.  

3.) Can you conduct annual market checks?  

Selecting a PBM does not need to be a “set it and forget it” decision. There can be benefits to multi-year agreements, but executives should evaluate performance annually, just like they do with every other aspect of their business. Key performance indicators include prescription utilization per member, cost per member, brand/generic mix, and rebate performance. When reviewing these metrics, look across PBM vendors to get an accurate picture of how your contract compares. 

4.) Does the PBM allow carve-out and support programs? 

Large PBMs often require businesses to use their specialty pharmacy and mail order programs – and pay a high price for the privilege. A PBM that allows carve-outs for certain medications gives employers the freedom to contract directly with another provider for those specialty drugs. Not accommodating carve-outs may be a red flag indicating a potential conflict of interest in compensation. 

5.) Does the PBM integrate with your health plan? 

Choosing a PBM that seamlessly integrates with your plan means employers can better manage the member’s overall healthcare journey – including ongoing medical visits and medication management – regardless of whether it’s a medical cost or prescription cost that is being paid. PBM integration will amount to a better member experience. 

6.) How does your PBM address GLP-1's? 

With American obesity rates above 40%, GLP-1's could potentially improve millions of lives. Unfortunately, these medications can be significantly more expensive for employers. GLP-1's currently cost in excess of $11,000 per patient per year, and one analysis found that GLP-1 drugs accounted for 6.9% of employers’ total claims costs in 2023. 

To maximize the impact of these medications while controlling costs, employers should ask their PBM how they deal with GLP-1's. How do they handle prior authorization? Does the plan permit these types of medications to be used for off-label use? What are they doing to negotiate reasonable prices? How do they handle ongoing utilization and monitor health outcomes?  

Every business is different, but these are important questions to ask, and you should expect your PBM partner to help determine a strategy that fits your needs.  

In Summary:  

Finding a great PBM partner will help businesses contain spending on pharmaceuticals, maintain employee wellbeing and understand exactly what they are paying for. By keeping these six questions in mind, employers will be in a better position to ensure the best possible benefits while serving as a prudent fiduciary on behalf of employees. 

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About the author:  

Jeff Bak is the CEO & President of Imagine360, an integrated health plan for self-funded employers.