There have been several reports in the news over the last 12 months about pharmacy benefit managers taking advantage of state-run Medicaid programs by charging exorbitant spreads on prescription drugs. Arkansas, Ohio, Kentucky, and West Virginia are a few of the states currently looking into what amounts to price gouging on the part of the middleman PBM.
But this phenomenon is not limited to state-run Medicaid programs. The same spread tactic the states are hopping-mad about happens in just about any commercial plan and even in the grand-daddy of them all, Medicare Part D. This raises the obvious question: why would a company offering a pharmacy benefit to its employees not connect the dots? If States believe that the PBMs are overcharging them, one would think that at some level a savvy executive would ask similar questions.
The answer is at the same time both simple and complex. To make matters worse, industry trends like vertical integration muddy the waters. Let’s take a look at some possible scenarios to explain why companies are not looking for alternatives to the PBM prescription model.
Ignorance
There is bound to be some of this around the industry; CEO’s and small business owners not understanding the complex details involved in the prescription benefit, including the spread model, service fees, and manufacturer rebates. I would hope that this would be predominantly a trait of smaller businesses that do not have a dedicated HR and/or benefits staff as an understanding of the inner workings of health benefits would be expected in those cases. But we are seeing very few large companies challenge the existing model. There are exceptions: Amazon, Berkshire Hathaway, and JPMorgan actively looking at new models.
Inertia
Sometimes change is hard. Okay, change is always hard. And another reason we don’t see companies investigating alternatives is that the current system has become easy to ignore. And the PBM industry, which benefits from the status quo, is smart enough not rock the boat too much. There are few smoking guns, and if you have to root around a lot to find smoke, then the logical conclusion is that there is not fire. In fact, the fire has been smoldering and growing for years now, with the state Medicaid programs being some of the first ones to identify the hot spots.
A Stacked Deck?
Another issue that I hear about is a little surprising: some insurance companies will not allow a business to carve-out the prescription benefit. Or, if they do allow this, the health insurance premiums for the insurance actually increase. When this happens, the company is essentially handcuffed to one model. This, of course, loops back to the inertia problem. In order to investigate a new model, a company would have to be willing to change not only the prescription benefit but also the health benefit!
Become an Educator
Few people outside of the pharmacy world actually understand the complex workings of the prescription benefit. It is complex, convoluted, and the entrenched entities–the PBMs– work hard to keep it that way. Part of the PBM value proposition is they make this “easy” for the company wanting to offer a prescription benefit.
But there are alternatives. Independent pharmacies and associations of pharmacies could easily offer a direct to employer prescription benefit that offers much of the same value the PBM offers without a middleman adding costs.
If you look at what is standing in your way, the biggest hurdle is identifying the right persons to talk to and educating them. Simple in concept, difficult in practice. But the possibilities for savings by a business are significant. A recent analysis we did for a local employer showed that a direct contract with our pharmacy, eliminating the PBM, would save them almost $20 per prescription. For that small business, the difference in expense was thousands of dollars every quarter.
Ignorance and Inertia can be overcome. There may be little you can do to overcome back-room deals with bigger players like insurance companies and large corporate customers, but in reality, an independent pharmacy is much better suited to service the smaller businesses in their local area. The relationship can be a win-win. The business saves on drug spend dollars, and the pharmacy develops a new, profitable revenue stream allowing it to persevere.
And now comes the icing on the cake. Published studies show that an involved, independent pharmacy may be able to save the business on its medical spend by reducing total cost of care. This could be a game changer to the current system. Discuss the possibility of studying any impact that a direct contract might have on spending outside of the drug spend! It can become a win-win-win!
Make your next encounter with a local businessman or businesswoman count. Take the time to learn about their needs and educate them about the possible savings they could achieve.
