If you have successfully interested with an employer to self-insure and consider a direct pharmacy services contract, the next step is to understand the landscape, devise a benefit, and put the logistical parts together. In many ways, this is the hardest part, especially if you try to make it more complicated than it needs to be.
The first step is to demonstrate the potential savings. This is not as easy as you might expect. The goal is to compare the employer’s current medication cost with the the estimated costs under a direct contract with your pharmacy. The problem is that if the employer was previously using a traditional medical insurance package, the drug benefit was likely bundled with medical expenses and is not easily teased out.
On the other hand, if the employer has a history of using a PBM to manage their benefit, they should have access to reports that detail exactly what was purchased and what it cost both the employee (their coinsurance / copay) and the employer. We are going to assume that the employer has some access to to an itemized listing of medication costs. If they don’t have this, the process becomes one of trust and experimentation.
There are two scenarios possible if the employer has access to this information: 1) they share a de-identified list of medications (ideally NDC) and quantities, but not what they were invoiced for them, or 2) they share a de-identified invoice complete with what they were charged. The difference is a matter of trust. With all information the pharmacy can completely prepare the analysis for the employer, but they can also potentially manipulate the contract terms to maximize their own profit. By excluding invoice price, the employer will have to do this work, making the comparison of the PBM expenditures and pharmacy estimates.
In order to prepare for the analysis, the pharmacy has to come up with a proposed contract. As mentioned last time, I often use an Invoice Price + Dispensing fee schedule for these contracts. They are one of the simplest to implement. I suggest a fee based in part on a published cost of dispensing survey. In Iowa, for example, Medicaid has a dispensing fee of $10.07 based on actual pharmacy financials submitted to a third party for analysis.
The disadvantage of this simplistic fee schedule is that some inexpensive drugs will cost the employer more than they were paying under a PBM contract. The savings on the rest of the items, however, is usually more than enough to offset this plus save the employer significant dollars. If you don’t have the employer’s actual invoice cost and they are doing their own analysis, be sure to let them know in advance this to avoid surprises.
The employer’s actual expenditure is the amount remaining after any deductible and coinsurance are collected by the pharmacy. When doing an analysis for the employer, or providing an estimate for them, you need to build in the traditional mechanics of deductibles, coinsurance / copays, and tiers. Once again, keeping it simple is recommended because whatever you suggest will have to be tracked if you secure the contract.
For this reason, I recommend completely eliminating deductibles in your proposal. The employer might initially balk at this, but if bottom line saves them money even without a deductible, the employer gains an additional benefit: happier employees! Another piece of pre-work that you should do is to create a list of the medications they have used over the last several months or years and place them into appropriate tiers of Brand / Generic / Specialty. How you define these may differ from their previous contracts and it helps to have this written out before completing the proposal.
While developing a proposal, I recommend using a spreadsheet that allows you to adjust Tier, Copay and Coinsurance for all prescriptions at once. This takes a little technical know-how but will allow you to tweak the proposal quickly as negotiations move forward.
Example: Simple Contract Structure
Employer Cost on Medications:
Specialty: Cost + $50
Brand: Cost + $15
Generic: Cost + 10
Employee Cost Sharing 30 day supply
No Deductible
Specialty: 25% Coinsurance
Brand: $35.00
Generic: $4.00
Birth Control: $0.00
Employee Cost Sharing 90 day Supply
No Deductible
Specialty: 25% Coinsurance
Brand: $70.00
Generic: $8.00
Birth Control: $0.00
As simple as this schedule is, it is actually fairly complicated to model in a spreadsheet. More importantly, you will need to be able to apply this (or whatever you eventually agree upon) to the actual prescriptions going forward. While you may be able to handle this manually for a small employer, you will want to automate this if at all possible to ensure consistency going forward. For a larger employer, automating the fee schedule is imperative.
Many pharmacy management systems have the ability to put together price schedules that will accomplish the simple contract demonstrated above. Contact your vendor’s support line if you need help. The last piece of the puzzle is putting together the monthly invoice for the payer. The key is developing an invoice that represents the price schedule minus the copay / coinsurance collected at the point of sale. Again, your pharmacy management software may be able to do some or all of this for you.
All of this is just looking at the drug product. The contract can and should also include value-added services. Take the time to discuss clinical programs, immunizations and other areas that can help the employer’s staff stay healthy, have fewer sick days, and lower overall health costs. This is more than just beating the PBM at the drug price game; it is about pharmacy as a service that can impact total health spend.
With these guidelines in mind, you can put together a compelling argument for a direct to pharmacy contract with an employer. The net savings for the employer can be very significant, as is the the benefit to the pharmacy. Besides gaining a revenue stream with a sustainable profit margin, the pharmacy can expand business as well, bringing in new customers. This is one encounter that can count on many different levels. Get out there and make every encounter with local employers count!
