Most insurance plans now avail themselves of Pharmacy Benefit Managers. PBM’s, as they’re lovingly called in the business, act as intermediaries for insurance companies (and other organizations). Their goal is to enable carriers to save money. It’s how they do so that’s coming under increasing scrutiny.
In its simplest (and most typical) form, PBM’s are essentially drug wholesalers, which arrange with carriers to supply medications to insureds. Buying in bulk, they’re supposed to pass the (often substantial) savings on to the carriers, and from their to those they insure. For example, PBN’s often qualify for rebates on the medications they buy, which are then to be passed on (in whole or in part) to the insurance company (or self-funded plan).
In their original form, PBM’s created a pricing differential between what they paid the manufacturer and what they then charged the carrier. They also kept a portion of those rebates we mentioned, as well as any fee they received from the manufacturer for administering the rebate contracts. These could amount to as much as 3% of the cost of all the drugs that had rebates. Not too shabby.
Unfortunately, many PBM’s neglected to actually pass on those savings, keeping the rebates (and fees) for themselves. As one might imagine, once this practice came to light, recriminations – and lawsuits – followed. This has led to a new trend, transparency (see, it’s cropping up all over the place!). Numerous PBM’s are now offering “pass-through pricing” contracts, where plan sponsors (carriers) get billed for the actual drug charges and dispensing fees, and receive all of the rebates, as well.
Unfortunately, such deals rarely apply to the now ubiquitous mail-order programs. Ultimately, this kind of transparency will, however, be available to mail-order, as well as the retail channel. Since drugs account for a disproportionate share of health care costs, reining in their costs will also help with the cost of health care in general.
(On an unrelated note, we're proud of this article, based in part on an InsureBlog investigative series, recently published in Human Resource Executive magazine. HRE is the trade journal for folks in the HR field, and InsureBlog is mentioned several times; click here for a .pdf of the article)
Henry Stern, LUTCF is an independent insurance agent in Dayton, OH. A licensed Continuing Education instructor for Ohio and Kentucky, he has well over 20 years of experience in “the biz.” He blogs every day (or so it seems) at InsureBlog.