Articles on Pharmacy Benefit Management

'PBA' Model Is Defined by Full Disclosure, Low Net Cost, High Degree of Client Control

Reprinted from the March 25, 2005, issue of DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies.

With more and more PBMs coming out with their own definitions of "transparent" bids, two companies that call themselves "pharmacy benefit administrators" (PBAs) say they've been using this kind of model since their inception. In addition to their full-disclosure philosophies, Greenwood Village, CO-based HealthTrans and Wausau, WI-based Innoviant say they focus on the lowest net cost of drugs rather than on maximizing the amount of rebates, and they encourage their clients to manage their pharmacy benefits however they choose.

The term PBA has historically referred to companies like First Health Services Corp. (recently acquired by Coventry Health Care, Inc.) that administer state Medicaid contracts, but "the landscape is really changing," says Innoviant's vice president of strategic planning, Rhonda Grabow. Structurally a PBM and a PBA appear to be the same, she says, but offering the "full weight of all the information available" to clients distinguishes Innoviant from a traditional PBM model. Innoviant covers more than 1 million lives and has been serving self-funded employer groups and third-party administrators as a PBA since it spun off from former parent Wausau Benefits in 2002.

Like many of the transparent models touted by PBMs today, Innoviant passes through 100% of all rebates to clients, which Grabow says disconnects the company from having a stake in the rebates. The company also accepts no administrative rebate fees, nor any other sort of pharmaceutical company revenues, without disclosing them or sharing them with the plan sponsor. Innoviant typically does not retain any spread, or the difference between what is paid to the PBA and what the PBA pays the pharmacy.
Included in a flat per-employee per-month administration fee are any services that Innoviant clients opt to take, whether they be a full range of clinical programs, preferred products list management, electronic claims processing and customer service, or just claims processing and one or two of Innoviant's step-therapy programs. If an existing customer comes in later and wants a clinical program, Innoviant would implement it with no additional fees. Instead of "imposing medication-restrictive programs that save cost," Innoviant seeks to let clients decide what's appropriate for them and retain "more input and control over how the services are negotiated and administered" in a fee-for-service arrangement, says Grabow.

The traditional PBM model focuses on maximizing the amount of rebates, asserts HealthTrans Chief Operating Officer and co-founder Louis Hutchison. In that sense, PBMs are "incented to try to promote a drug whether or not it has the lowest net cost." They also might retain a spread, he says. HealthTrans, on the other hand, recommends drugs for formulary placement based on their therapeutic efficacy, and secondary to that is their lowest net cost, according to Hutchison.

Health Trans Model Includes Full Pass-Through

Since the company began operating in 2000, HealthTrans has offered a full-disclosure model that features full pass-through (i.e., the price paid to pharmacies is the same price charged to health plans for the drugs) and the passing on of 100% of rebates to clients. In addition, the company "actively encourages customers to retain how they want to manage their benefits." Hutchison tells DBN. For example, some health plans already have prior-authorization or step-therapy protocols in place that they view as successful, so the PBA would just support their use of those tools.

HealthTrans charges an administrative fee that can range from $3.50 to $5 per script depending on the size of the client. The company serves about 13 million lives, which translates into more than $3 billion in pharmacy transactions annually.

Hutchison provides the example of the proton pump inhibitor (PPI) class to explain how HealthTrans can get lowest net cost while maintaining therapeutic efficacy. Nexium, for instance, is a PPI that many traditional PBMs might lobby to place on a formulary. If the total ingredient cost is $136 per 30-day supply and the PBM retained a $4 markup on pharmacy fees, the health plan/employee would end up paying a total of $140. Meanwhile, the manufacturer might pay a $15 rebate, which the PBM would keep. This is just an example of what might happen under the traditional PBM model, Hutchison says.

In a full-disclosure model, on the other hand, the PBA might recommend that the employer put Protonix, a less expensive PPI costing about $94, on its formulary. In an ideal full-disclosure scenario, the manufacturer might pay a lesser rebate than on Nexium, but the total employee plus employer amount paid would be significantly less than they would have paid with Nexium, and the rebate had been passed on to the employer. Even though the employer would not reap the benefit of a rebate, it could achieve even greater savings if it opted to manage Prilosec OTC, which costs only about $24.

To clarify what transparency really means, HealthTrans offers a "transparency pledge" to customers that bullet-points its promises to share certain information and create a "value-based formulary" as long as the client agrees to provide the data necessary for Health-Trans to perform a cost-savings analysis and do business in a similarly transparent manner. That agreement is not a legally binding document, although the reverse side includes a mutual nondisclosure agreement that is legally binding.

According to survey data collected by AIS, HealthTrans is the eighth largest PBM with 13 million covered lives and is the 15th largest by prescription volume, with 70 million scripts per year. Innoviant is smaller, with only 450,000 covered lives and 3.6 million scripts per year.

PBA Model Is Not for Everyone

Hutchison says the transparent deal is how HealthTrans prefers to do business, but there are customers that feel they need to see an "apples-to-apples comparison" that they can't really get with a transparent bid and might ask for a traditional bid instead. HealthTrans would oblige, but still give the customer the ability to audit.

"A PBA doesn't really work well for someone that doesn't want a lot of control," says Grabow. Therefore, some Innoviant clients might opt for the traditional model, which could include the PBA retaining a portion of rebates and charging no administrative fee. "We would do it and show them what that meant to them — the zero admin fee, average amount we earn per claim — and we would let them know that's how we would make a profit." At any time, the client could opt to change that pricing structure, she says. "Whether they're set up as a transparent model or [traditional pricing scheme] they all have access to full disclosure from us."

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