Articles on Pharmacy Benefit Management

Featured Health Business Daily Story February 6, 2008

PBMs Tout Their Transparency, but Model Doesn't Always Lower Drug Costs for Clients

Reprinted from DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies.

By Neal Learner, Managing Editor, (nlearner@aishealth.com)

The pharmacy benefit management (PBM) industry claims to embrace the concept of "transparency." In today's business environment, few, if any, PBMs would dare prohibit clients from examining at least a good measure of their contract arrangements. But as more and more PBMs tout their commitment to financial disclosure, some acknowledge that transparency alone doesn't always lower Rx payers' costs. And at least one consultant claims the industry still has a long way to go on demonstrating "real" transparency.

Nevertheless, PBMs are attempting to shed greater light on their business practices. Among recent developments, the HR Policy Association (HRPA) this fall certified three new PBMs and recertified 12 PBMs that agreed to do business in a "fully transparent manner" under HRPA's pharmaceutical coalition standards known as the "Transparency in Pharmaceutical Purchasing Solutions" (TIPPS) standards.

The standards include: providing employers the acquisition cost of brand and generic drugs dispensed at retail and mail-order pharmacies; disclosing and passing through all revenue from drug manufacturers that relates to utilization under an employer's contract; providing acquisition cost and pricing transparency for specialty pharmacy drugs; and allowing rigorous audit rights.

The TIPPS standards are changing the relationship between employers and PBMs, says Marisa Milton, director of health care policy at HRPA.

For one thing, HRPA coalition members are much more likely to ask their PBMs about transparent arrangements than are other employers, she tells DBN. The coalition is made up of roughly 60 large employers. "More importantly, employers are asking for transparency on their terms, as opposed to having PBMs define transparency for them," she adds.

Because of this, Milton says, employers in the TIPPS program report savings of 3% to 10% off total program costs, compared with their former contracts. But that doesn't mean there aren't areas that could still benefit from greater transparency, she adds.

"Going forward, we would like to explore ways in which employers can hold retailers to the same standards as we currently hold our certified PBMs," Milton explains. "And we would like to have more information on how PBMs calculate savings estimates for their clinical management programs."

Other groups also have sought to ensure greater PBM transparency. Standards body URAC addressed transparency in its PBM accreditation standards, released in October 2006. The URAC standard for customer service, communication and disclosure requires that PBMs clearly and adequately disclose the business relationships between contracting parties to health care purchasers. Under this provision, PBMs also should allow their clients the right to audit to adequately determine that contract terms are clearly followed.

Employers are responding to the industry's efforts. Employers that say they are "extremely satisfied" with the financial transparency of their PBM relationship gave their PBMs an average overall service performance rating of 9.1 on a scale of one to 10, according to the Pharmacy Benefit Management Institute's annual PBM Customer Satisfaction Report, released Dec. 8. By comparison, employers that are "extremely dissatisfied" with the transparency arrangement rated their PBMs' performance an average of 4.7, the report said.

PBMs See Value in HRPA Stamp of Approval

PBMs that have received the TIPPS or URAC accreditation naturally are touting their commitment to transparent financial disclosures. But one large health plan-owned PBM says that savings to PBM clients stem from more than just transparency. There are many factors involved when looking at pharmacy costs, and savings are not always guaranteed or achieved through the TIPPS transparency model, says Rob Galle, chief operating officer at Aetna Pharmacy Management (APM).

Galle says clients of PBMs must still carefully review the value proposition in the PBM offering, such as the quality of the services that they will receive. Clients also should have an "inherently strong relationship with their PBM partner to ensure maximum value," he tells DBN.

To comply with the TIPPS standards, APM had to modify "minor components" of its business, explains Galle. "However, TIPPS certification has primarily been just a confirmation of the standards we already set for ourselves." APM also received URAC's PBM and drug therapy management accreditation. "These accreditations provide a broad spectrum of checks and balances as it relates to transparency," Galle says.

Tim Heady, CEO of UnitedHealth Pharmaceutical Solutions, says UHPS has long believed in being transparent and has practiced these principles for many years. The principles may be holding sway over other PBMs as well. "The industry overall has clearly moved to a more transparent model due to market demands and increasing pressures from employers on full financial disclosure," he tells DBN.

But Galle also cautions employers about drawing the wrong conclusion regarding PBMs that are not part of standards promoting transparency. "One certification is not the sole indicator of the effectiveness or ineffectiveness of the programs that a company offers," he says.

Transparency Is Said to Be Still Lacking

Meanwhile, some PBM observers contend the industry still fails to provide real transparency.

"The new buzzword in the industry is 'transparency,' but very few PBMs are actually providing transparency, and most PBM clients need assistance if they are to achieve it," says Linda Cahn, president of Pharmacy Benefit Consultants.

If real transparency is to be provided, she tells DBN, a PBM must contractually agree to three things:

First, the PBM must agree to invoice its client for every drug dispensed (whether by retail, mail or specialty pharmacy) using the actual price the PBM paid for the drug;

Second, the PBM must pass through to its client all "financial benefits" that the PBM receives from all third parties, including all rebates, discounts, credits, and administrative and other fees, because all such "financial benefits" decrease drug costs; and

Third, the PBM must agree to provide the documents and data necessary for its client to verify that the previously described contract terms are being satisfied.

"Almost no PBMs will execute contracts that contain such terms, and very few consulting firms are insisting they do so," says Cahn, an attorney who has reviewed hundreds of PBM/client contracts and litigated against PBMs.

PBMs claiming to be transparent typically agree in their contracts to invoice clients for retail drugs based on the PBMs' reimbursements to retail pharmacies, she says. Those PBMs also agree to disclose data showing they have done so, she adds. "But tellingly, those same PBMs make sure their contracts do not contain pass-through pricing for mail and specialty costs. And they make sure that they will have no obligation to disclose their actual costs for mail and specialty drugs."

As a result, whatever savings a client may achieve from transparency related to retail drugs is "taken back by those PBMs when the PBMs increase their profit spreads on mail and specialty drugs," Cahn contends.

Cahn also asserts that most PBMs write contracts that ensure they will not have to disclose information about third-party payments and discounts, such as the fees paid to PBMs by drug manufacturers or the discounts provided to PBMs by wholesalers. "The test of transparency is whether a PBM is willing to sign a truly transparent contract, not whether a PBM claims it will provide transparency," says Cahn. "Almost no PBMs are willing to sign such contracts."

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