The new PBM: PBMs step up as leaders call for true transparency

May 1, 2006

Some say the PBM industry is going through a dramatic evolution, and David Calabrese, RPh, MPH, vice president of clinical services for the non-profit pharmacy benefit management company MedMetrics Health Partners, is helping to keep the pace. Several strong influences are creating the evolution, and PBMs have responded with a new business model to meet the demands for greater transparency, shedding some light on the cost and value issues involved in pharmacy benefits.

Calabrese, a MANAGED HEALTHCARE EXECUTIVE Editorial Advisor, says there is an unacceptably high level of distrust and dissatisfaction among PBM customers. "Mounting lawsuits and fines waged against the for-profit PBM industry leaders, as well as a hostile regulatory environment, have exposed a number of previously unrecognized PBM business practices, which have fueled the fires of this distrust and created a strong call from managed care, employers and government leaders for a new and different PBM business model," he says.

A. The newly emerging PBM is one designed to overcome most, if not all, of the shortcomings and criticisms of the current PBM business model. It is one that strives to create a higher level of trust by aligning the PBM's financial incentives with its clientele. While many of the larger PBMs have developed 'pledges' to operate under a more transparent and ethically sound business strategy, the new breed of PBM will go beyond such cursory pledges by establishing a more truly transparent, fully pass-through, and accountable business model. Contracts between the new PBM model and its clients will be based largely upon per-member-per-month (PMPM) administrative fees and mutually developed performance standards. The new PBM will de-emphasize the focus on pharmacy spread, manufacturer rebates and per-claim administrative fees, and shift that focus toward driving the most cost-effective, evidence-based care possible in partnership with its clients.

Q. How would you define 'transparency'?

A. Transparency is a form of business practice involving full disclosure of costs and revenues, allowing the customer to make more well-informed decisions regarding purchases. In the PBM industry, transparency lays the groundwork for more simplified PBM-client business relations, more accurate financial modeling and performance metrics and a greater comfort level among PBM consumers. 'Transparency,' however, is a relative term used freely in the marketing efforts of many PBMs. The genuine commitment to transparency lies in the actual business practices the PBM invokes to support this claim. 'True transparency' is a model in which all PBM revenue streams [drug-level rebates, funding of clinical programs, administrative fees, service fees, management fees, research/educational grants, etc.] are fully disclosed to the payer; the full value of retail and mail-order pharmacy discounts is passed onto the client; data is shared with the client; and the client is given ultimate decision-making control over its drug benefit design and formulary management. It is this commitment to true transparency which has begun to differentiate newer PBMs.