Benefits Insights – PBM Transparency

Pharmacy benefit managers (PBMs) have been providing services to health care sponsors since the mid-1980s. First emerging as entities that processed prescription drug claims, they have expanded over the years to offer services, such as developing and maintaining drug formularies and pharmacy networks and providing prescription drugs through mail-order and specialty pharmacies.

PBM Concerns

PBM transparency, or lack thereof, has long been an issue among payers and policymakers. PBMs’ multiple revenue sources and confusing pricing and packaging methods leave many employers unsure of what bundled services they’re really paying for. PBM practices are often viewed as misleading, as they result in significant profits for PBMs and higher costs for plan sponsors, while payers struggle to manage costs and plan members cope with rising out-of-pocket expenses.

Recent confusion over transparency stems from PBMs moving to a model in which revenues are generated from various sources, including manufacturer rebates, network spreads, and mail-order and specialty pharmacy services. PBM controversy also continues regarding the regulation of PBM business practices. In recent years, federal and state litigation as well as various stakeholders in the prescription drug industry have alleged that PBMs sometimes engage in various unfair business practices because PBMs consider their contract negotiations with manufacturers and pharmacies confidential and proprietary.

Certain states have passed laws to regulate PBMs, including requiring more transparency, requiring pass-through of rebates and other payments (rather than keeping a portion for themselves), restricting drug-switching and prohibiting other practices that involve a conflict of interest. Checking the laws in your state can help you better navigate the PBM marketplace. However, the following key considerations can be helpful when selecting a PBM:

• Understand that PBMs define transparency differently. There is no standard definition of transparency from an industry or legal standpoint. One PBM’s definition may completely differ from another. Make sure you understand how your PBM defines transparency.
• Only a true understanding of transparency and validation of tangible price points can allow payers to assess their real value of savings.
• Comprehensive market evaluations provided by inside experts are needed to compare all financial offerings on an “apples-to-apples” basis.

Expect and prepare for ambiguous responses from PBMs, but be ready to require a commitment from them on specific pricing criteria and methodology. In addition, having a thorough, strategic process in place to award, audit and manage PBM and drug spending is critical for plan sponsors looking for real value and return on investment.