How to Avoid High Prices and Fees Hidden in PBM Contracts

The pricing practices and operation models of pharmacy benefit management companies continue to make news headlines— from executives of large PBMs testifying before Congress to employee benefit plans in several states discovering drug prices were steeply marked up by the plan’s PBM. In early July, the Federal Trade Commission released a report showing how large PBMs steer patients away from less expensive drugs, overcharge for cancer therapies, and increase the spending of health plans. For example, the FTC report and A New York Times investigation cited how the largest PBMs were charging both employers and Medicare Part D patients extremely high prices for abiraterone acetate, a generic version of the prostate cancer drug Zytiga. The drug is available from wholesalers for under $200 a month, while employers were paying between $15,000 and $3,000 per month. For employers, understanding how many PBMs operate and how to assess a PBM contract is vital to saving money and ultimately offering employees a better benefits package. Explore common PBM practices, how they are impacting employers and employees, and strategies to gain transparency.

Three PBM Tactics that Drive Up Medication Costs

• Spread Pricing: Many PBMs mark up drug prices, charging employers a higher amount than they pay the pharmacy. The difference in cost may not be shown in the contract and becomes profit for the PBM.
• Hidden Rebate Fees: PBMs negotiate rebates with drug manufacturers and claim to pass all rebates to the employer. Often, a number of fees are subtracted from the rebate. These may include administrative fees, implementation fees, and consulting fees.
• High-Cost Formularies: If a PBM is profiting from rebate fees, they have an incentive to select brand-name drugs that offer attractive rebates for formularies. While high rebates sound impressive, they can result in complex formularies that don’t provide the lowest net cost for the employer. In some cases, the brand-name drug price minus the rebate costs more than an equally effective and less expensive drug.

How Employers and Plan Members Pay the Price

Inflated costs and unclear pricing impact pocketbooks and benefit plans, making it harder for plan members to stay healthy and employers to thrive.

Increased Spending

• Employers can pay far more for drugs than the actual cost and receive less rebate money, driving up the cost of total drug spending and benefit plans each year.
• Higher plan prices either lower the employer's bottom line or are passed on to plan members in the form of higher co-pays or deductibles.

High Out-of-Pocket Costs and Lower Retention

• Plan members have higher out-of-pocket costs for medications.
• Employers are unable to offer attractive benefits packages, lowering employee satisfaction and making it harder to recruit talent.

Complex Contracts

• Traditional PBM contracts often do not offer visibility into actual costs, making it harder for employers to know how much of the plan cost goes to the PBM.
• When PBMs favor high-rebate formularies, it makes it difficult for employers to make informed decisions about coverage. The result is that employers and plan members often end up with expensive medications instead of less expensive generics.

Get Clear Pricing and Transparent Contracts

Key Questions to Ask Your Broker

Some employers may not be aware that they have options when it comes to transparency in PBM business models.

Get clear pricing and avoid hidden contract fees by asking your benefits broker these vital questions:

1. Do you work with a PBM that has wholesale pharmacies in network?

More PBMs are including wholesale pharmacies in their pharmacy networks. For example, True Rx Health Strategists recently teamed up with Mark Cuban Cost Plus Drug Company to include the transparent, mail-order pharmacy in network for all clients that offer mail order. Advantages include:

• Plan members have easy access to low-cost medications with Cost Plus Drugs combined with care from True Rx clinical pharmacists and Patient Care Team.
• A member can order directly from CostPlusDrugs.com. Member costs apply toward deductible and out-of-pocket maximums.
• Members save up to 60% on their medication costs. (Based on analysis of the top ten drugs when switching to Cost Plus Drugs.)

Mark Cuban’s philosophy of clear, affordable pricing aligns with our company’s model of offering solutions that contain costs for employers and lower prices patients are paying at the pharmacy counter.”

2. Does your PBM pass all rebates through to the employer? Are there any rebate fees in contracts?

Contract language around pass-through rebates can be complicated, so ask your broker to explain definitions and restrictions in your PBM contract. Look for a PBM that passes through 100% of rebates to the employer. If there are fees for administration of rebates, they should be clearly stated in the contract.

Learn more in our pre-recorded webinar, Confronting the Game of Rebates.

3. How does the PBM select formularies?

Be sure a PBM is looking at the lowest net cost for formularies and not rebates that generate profits. One indicator of the balance between generic drugs and brand name drugs is the PBM’s generic dispensing rate. Typically, a generic dispensing rate that is 87% or higher signals the PBM is focused on the lowest net cost.

Explore Pharmacy Plans with Clear Pricing

True Rx Health Strategists ensures plan designs, pricing, and formulary choices are driven by patient-focused care and solutions that help employers and plan members thrive.