Friday, July 10, 2015

Controlling Pharmacy Costs

Two themes have driven what I’ve covered in this column this year: how to treat employees with dignity through the benefits we offer, and how to create beautiful, elegant benefits solutions that work.

Under these guidelines, I believe I’ve found a company that accomplishes both: GoodRx—a web and app-based service providing consumers with the lowest prices available on prescription drugs. (Note: I have no financial relationship with this company or its leadership.)

When GoodRx first came on my radar in 2012, the company's co-founder, Doug Hirsch, described their mission this way: "We want to mimic companies like Orbitz and create prescription-drug-price transparency so consumers are informed and can afford the medications they need." 

I reconnected with Hirsch in early 2015 after having a personal GoodRx experience. I was picking up the one prescription drug I take and was surprised to find at the register that my health plan no longer covered the medication. My pharmacist told me I was responsible for the $100 charge. After pausing for a moment, I remembered I had the GoodRx app on my smartphone. To my delight, I discovered my pharmacy offered the lowest price available with the GoodRx discount. I saved $40 on the spot.

I contacted Hirsch to thank him for the savings, and discovered in the ensuing conversation that the company had grown its services to include a transparent pharmacy benefit management program for employers, as well as a GoodRx platform for physicians, and even a GoodRx search for pet pharmaceuticals.

After further research on GoodRx and the PBM world in general, I wanted to share key points with HR leaders.

PBMs first came into being during the mid-1980s. They largely acted as a third-party administrator for pharmacy claims and held a fiduciary responsibility to clients to find the best prices for prescription drugs. PBMs managed two contracts to produce its services: one with the pharmacy networks it created, and the other with the plan sponsors (a self-insured employer or a health plan).

The mail-order pharmacy business began in the early 1990s. In this scenario, PBMs were no longer negotiating with pharmacy networks; they were negotiating with themselves.  

Dispensing through their own mail-order pharmacy allows PBMs to ensure patient adherence to treatment and formulary compliance, using in-house pharmacists to contact physicians to switch patients to preferred brand drugs or get prescriptions renewed. Greater ability to shift share can bring larger rebates on brands.

When you talk with PBM experts, most will highlight the cost of PBM services as a combination of administrative fees, manufacturer revenue and spread. The primary caution they will share with employers, however, is the need to understand “spread.”

According to a paper written for the Department of Labor’s 2014 ERISA Advisory Council, here is an example of how spread works:

“The PBM may reimburse pharmacies for drugs at the [Average Wholesale Price] minus 18 percent plus a dispensing fee. These payment rates at which PBMs reimburse pharmacies are not generally known to plan sponsors. The PBM contracts for reimbursement from the sponsor at a somewhat smaller discount off AWP, say AWP minus 16 percent plus a $2 administration fee per script. The difference between the sponsor’s payment rate to the PBM and the PBM’s payment rate to the pharmacy is known as the ‘retail spread’ and is a significant source of PBM’s net revenue.”

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