Where Are Your Pharmacy Dollars Really Going?

Where Are Your Pharmacy Dollars Really Going? You know what your health plan costs.

But do you know what you’re actually paying for?

At Conner Insurance, we believe employers should have a clear understanding of how their pharmacy benefits work and what is driving their costs. Our team has spent years reviewing health plans, pharmacy contracts and renewal proposals, helping employers ask the right questions and make informed decisions about their benefit programs.

That is one of the reasons we were so passionate about contributing to Side Effects May Include: The Hidden Costs of Prescription Drugs. The documentary and complementary book pull back the curtain on pharmacy benefits, exploring how money moves through the system and how financial incentives can affect what employers spend and what patients pay for their medications.

For employers, knowing what’s driving your costs is the first step to understanding what you’re getting in return.

That’s where the PBM comes in.

A pharmacy benefits manager, or PBM, sits between a health plan, pharmacies and drug manufacturers and plays a key role in how prescription drugs are managed and paid for. Acting as “middlemen” in prescription drug benefits, PBMs can be compensated in several ways depending on the terms of their agreements with plan sponsors.

Some of those arrangements can be difficult to see in a traditional renewal report, particularly when multiple pricing and payment options are involved.

Spread pricing.

One way a PBM can be compensated is through spread pricing. Under a spread-pricing arrangement, the amount a PBM charges the health plan for a prescription can be different from the amount it pays the pharmacy. For example, a plan could be charged $100 for a prescription while the pharmacy receives $60. The $40 difference is the spread.

An employer may see that the plan was charged $100, but not what the pharmacy received and what the PBM kept. Without that clarity, it’s difficult to know if the plan is getting the lowest price possible or if the PBM is making more money when a higher-cost option is used.

This lack of transparency can lead to higher pharmacy costs, which means employers may have to find other ways to cover the difference. That could mean asking employees to pay more through higher copays or premiums. Over time, those changes can make it harder for employees to afford the medications they need.

Essential questions to ask about spread pricing:

• Does our PBM use spread pricing?
• How much does the PBM pay the pharmacy compared with what it charges our plan?
• Can we receive claims-level reimbursement data?
• Does the PBM make more money when our prescription drug spending goes up?
• Are there any limitations on auditing the spread?
• What is our actual net cost, and where does every dollar go?

Rebates.

Rebates are another part of pharmacy pricing that can make costs harder to understand. Drug manufacturers may offer PBMs rebates for a variety of reasons, but a larger rebate doesn’t always mean the medication is the best fit for the plan. Consider two drugs used to treat the same condition:

Drug A costs $1,000 and comes with a $400 rebate.

Drug B costs $200 and has no rebate.

At first, the $400 rebate might look like a great deal. But after the rebate, Drug A still costs $600, compared with $200 for Drug B. Focusing on the rebate alone can make higher-cost drugs look more competitive than they are.

Essential questions to ask about rebates:

• What did our medications actually cost after all manufacturer payments were accounted for?
• Are there other payments you're receiving from drug manufacturers that aren't being counted as rebates?

How rebates can affect formulary decisions.

A formulary is the list of medications covered by a health plan. The purpose is to ensure that the drugs covered by the health plan are safe, effective and available at a reasonable cost.

This is where rebates become important. The concern comes when financial incentives play a role in which drugs are given preferred status on the formulary. For example, a PBM may receive a larger rebate from the manufacturer for a higher-cost medication. If the plan then gives that medication preferred status, employees may be encouraged to use it instead of a lower-cost alternative.

Formulary decisions can affect which medications employees use and how much the health plan spends. A drug that benefits the PBM financially is not always the drug that provides the best value to the plan and its members.

Essential questions to ask about formularies:

• How are formulary decisions made?
• What percentage of formulary decisions are influenced by rebates?
• Are clinical considerations separated from financial considerations?
• Are there lower-net-cost alternatives that aren't preferred?
• Who has the authority to change the formulary?
• Can our PBM show us the financial impact of formulary placement?

Start with the data.

Answering these questions starts with gaining information. In pharmacy benefits, data is one of the most important assets. Having access to the right data gives you greater clarity into what is happening within your plan and where your pharmacy dollars are going.

Which raises a question every employer should ask: Do you have your pharmacy claims-level data?

Your pharmacy claims data can show what your plan was charged for each prescription, what the pharmacy received, what the PBM billed and what rebates or other manufacturer payments were involved. Without that information, you're relying on the PBM to explain how well your pharmacy benefits are working.

Knowledge creates leverage.

Side Effects May Include: The Hidden Costs of Prescription Drugs gives you the opportunity to hear from industry experts, employers, pharmacists and others who can help you understand what's happening behind the scenes and how pharmacy benefit decisions can affect your organization and your people.

You don't need to be an expert in pharmacy benefits to understand what you're paying for. You need access to the right information and the ability to see where the money is going. Talk to your PBM, ask how pricing and payments work, and find out what information is available to help you understand your costs.

Because better healthcare decisions don't begin with accepting the status quo. They begin with asking better questions. Don’t hesitate to reach out with yours!

Cost figures, coverage details, and plan design elements presented in this blog are for illustrative purposes only and do not reflect any specific insurance policy or provider. Actual costs will vary based on your organization’s health plan, the insurance carrier, provider contracts, and the specifics of each medical situation. Employers and employees should refer to their official plan documents or speak with their broker or benefits consultant for guidance if needed.