New breed of PBMs are poised to address transparency in healthcare

February 1, 2006

When cultures enter Renaissance periods, new learning and ideas create transition. Heightened interest in the workings of pharmacy benefit management and subsequent changes in business philosophy represent a Renaissance for managed care. All key stakeholders will feel the ripples of change: payers, physicians, pharmacists, patients and pharmaceutical companies.

When cultures enter Renaissance periods, new learning and ideas create transition. Heightened interest in the workings of pharmacy benefit management and subsequent changes in business philosophy represent a Renaissance for managed care. All key stakeholders will feel the ripples of change: payers, physicians, pharmacists, patients and pharmaceutical companies.

Since their creation in the early 1990s, pharmacy benefit management companies (PBMs) have lowered the unit cost of prescription drugs by obtaining discounts from pharmacies and rebates from drug companies. Savings have been significant. While unit cost discounts remain important, healthcare purchasers' needs have changed. Currently, improving patients' pharmaceutical utilization and drug-related outcomes is imperative. Now, contractual relationships with physicians and patients will be needed. Health plans and disease management companies are better established with these target audiences, however, to influence outcomes, health plans and disease management companies will need sophisticated decision support tools. PBMs must reposition themselves to address these needs.

In the 1990s employers perceived receipt of now controversial PBM-generated brand name drug rebates as a true value. Although there are numerous types and definitions of "rebate," one revenue model-using costlier brand name drugs to generate larger rebates-has been widely criticized. Some audits of PBM claims data revealed a negative impact on total drug costs, and affected employers perceived some practices were misleading or fraudulent. These misaligned priorities included redefinition of rebates as administrative fees, data fees, or detailing fees retained by the PBM, not passed on to the health plan. Lawsuits sometimes followed.

SPECIALTY PHARMACEUTICALS

With retail and traditional mail service pharmacy unable or unwilling to handle these agents because of challenges with inventory, product knowledge and administration tools, PBMs need new cost management paradigms. Since these drugs are often administered in a physician's office or by a home health company, the claims payment has almost always been covered as a medical benefit. However, coverage is transitioning to the pharmacy benefit to take advantage of cost and utilization management tools. When PBMs become involved, they must establish consistent guidelines for managing the benefit.

Administration and distribution may occur via physician offices, specialty pharmacies or community pharmacies, and PBMs will need to determine the best, but least restrictive, site of care. Claims administration and coding issues need to be resolved. Issues such as discounts, physician service fees, rebates, and formularies have to be addressed in a transparent fashion, and utilization management (prior authorization programs) must not impede access for needy patients.