Tuesday, November 14, 2017

Reverse Auction Helps New Jersey Save $1.6 Billion on Prescription Drugs

Non-fiduciary PBM companies have learned how to leverage the purchasing power of the unsophisticated plan sponsor purchaser to their financial advantage. There are several ways to learn about the specific services and fees of those PBMs.

One is to engage a consultant to help select the most suitable PBM. The other identification process involves putting out a traditional request for proposal (RFP) that asks interested PBMs to respond with specific information in a very structured format. RFPs are usually lengthy and very time-consuming to complete.
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The request for information (RFI), on the other hand, is typically a shorter less-structured instrument that asks a number of PBMs to answer specific questions. When coupled with a reverse auction, the RFI is a powerful tool in combating high PBM service fees.

The biggest driver of savings for the state of New Jersey was a change in how the state selects its pharmacy benefits manager. Companies will now participate in a reverse auction, competing on price to provide prescription drugs. That change is expected to save $350 million in 2018 and $1.6 billion over the next three years.

Dump the traditional RFP

Reverse auctions create a hyper-competitive environment, driving best value for payers. The process often yields savings of more than 15% and allows the payer to probe deeper into the PBM’s formulary structure and their inclusion of high cost specialty drugs that often require special handling and administrative complexities.

Once a daunting task for companies, open bids are easier to execute with newly available, sophisticated auction technology that reduces the time and money spent on determining and securing the best prices and contractual terms. Payers must create their own fiduciary contract and put it out for bid vis-à-vis reverse auctions.

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