Monday, November 4, 2019

Infusing Radical Transparency into PBM Contracts

I try and call it how I see it sometimes this gets me into trouble oh well. Today, I will speak highly of a competitor. In this industry, competitors rarely speak highly of one another. It is cutthroat but I wouldn't have it any other way. I love the competition. From everything I've seen not heard, Benecard is one of the good actors. It's president, Michael A. Perry, wrote this recently about our own industry kudos to him.

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"Without a universal standard for transparency in PBM operations, pharmacy benefit managers can continue to play financial games and mask income streams, which makes accurately comparing PBMs via today’s standard spreadsheets virtually impossible. Some PBMs may not charge an administrative fee, but instead profit from spread–the difference between what the pharmacy benefit manager pays for a drug and what it charges your client. These expenses, along with other difficult-to-track fees and excessive or even dangerous drug utilization, can add up to significant expenses over time for plan sponsors and their members."

Where do I begin? Let's start with a universal standard for transparency. I'm not sure we need a universal standard for transparency. I propose instead sophisticated purchasers defining for themselves what transparency means to them then hold PBMs competing for their business accountable to this proprietary definition. It's a lot easier said than done which leads me to the second point.

Not only are some PBMs not charging an administrative fee they have begun to also "waive" the dispensing fee. What you give up in these exchanges is exactly the same thing Michael is suggesting we need more of - transparency. The hidden cash flows (see image above) opaque PBMs generate are service fees. The problem is that the service fees are hidden in the final plan costs through complex benefit design strategies which lead to poor product mix and wasteful utilization.

Price is an important factor in final plan cost but so too are utilization and product mix. The latter two make forecasting future costs practically impossible within any reasonable confidence level. If that is true, then any claims repricing done retrospectively should include those cost drivers. Without them performance is only partially measured.

In other words, the radically transparent PBMs focused on eliminating wasteful spending in utilization and product mix with computerized clinical management programs are being left in the cold when the focus is price. This is exactly what opaque PBMs want you to do focus on the front door while they sneak in through the back door. So while radically transparent PBMs might be left in the cold plan sponsors are left holding the bag.

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