Monday, January 9, 2012

Pharmacy Benefits Manager (PBM): Traditional vs. Fiduciary

Occasionally, I'm asked what is the difference between a traditional and fiduciary pharmacy benefit manager. I say "occasionally" only because the question isn't asked nearly as much as it should be. Many persons dealing with PBMs, either directly or indirectly, believe that PBMs are created equally and that couldn't be any further from the truth.

Let's say you decide to stop at the grocery store for some staples after a hard day at the office. Milk, eggs, cheese and bread are on your grocery shopping list. As you walk through the aisles, and before placing each item in the shopping cart, you are sure to check prices for every item.

This is a standard practice for most shoppers so to make sure that when one gets to the checkout counter the prices billed are exactly what were displayed.  You've agreed to pay only the displayed prices, not a penny more, once the item is placed into your cart.

Now, imagine a scenario where you've placed the milk, eggs, cheese and bread into your shopping cart then walked to the checkout counter only to find out that the prices have changed!  Take it a step further.  Because the scanned prices don't display on the cash register, you're unaware of the price changes until the cashier hands you a single line item receipt which says, "groceries $100," an amount owed much higher than anticipated.

The cashier simply wants you too pay whatever number he/she has been told is appropriate for that day. If you weren't aware of this potential scenario playing out prior to walking into that grocery store would you shop there again let alone pay the bill? Believe it or not this scenario plays out every single day between traditional pharmacy benefit managers and their plan sponsors.

First, the plan sponsor enters into a contract with a traditional PBM which they believe offers airtight drug pricing. Why would a plan sponsor think otherwise when their consultants have told them as much? No matter what you think you know the PBM will always know more and find loopholes to increase cash flow unless it embraces the role of a fiduciary.

The relative drug prices will often change as soon as the ink is dry on the contract.  But, the plan sponsor is unaware of the price changes because their PBM doesn't offer full auditing rights or access to MAC price lists.  Doesn't this sound familiar to the grocery store analogy?

Having access to price lists is essential to being able to confirm that you are paying exactly what you've agreed to pay and not a penny more.  Price lists are also very useful in determining the actual cost of a pharmacy benefit.

PBMs: Traditional vs Fiduciary Repricing Report (Actual)
[Click to Enlarge]

To make matters worse, a traditional PBM may send only a single line item invoice for drug benefit costs although thousands of claims have been submitted for that reporting period.  To avoid these pitfalls do business only with a fiduciary pharmacy benefits manager.

To speak of transparency alone is not enough; it must be binding. A fiduciary PBM discloses all cash flows, passes through all network prices and rebates, prices more competitive than industry norms and provides full accounting (auditing provisions) to the plan sponsor.

Any PBM which claims to be transparent and doesn't offer all of these features is an impostor. This is the primary difference between a traditional and fiduciary PBM. A traditional PBM may only provide one or two, but often times none of these features.

The real benefit to plan sponsors is that fiduciary PBMs offer similar services, at a lower cost, compared to a traditional PBM. Caveat Emptor.

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