Pharmacy benefit management

In the United States, a Pharmacy Benefit Manager (PBM) is a third party administrator (TPA) of prescription drug programs. They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs. Fortune 500 employers and public purchasers (Medicare Part D, the Federal Employees Health Benefits Program) provide prescription drug benefits to the vast majority of American workers and retirees. There are fewer than 100 major companies in this category in the US.^{[citation needed]}

Average PBM Savings: From 2012 to 2021, PBMs will save plan sponsors and consumers almost $2 trillion, or about 35%, compared with drug expenditures made without pharmacy benefit management. Of the $2 trillion, commercial plan sponsors and their members will save $1.3 trillion; Medicare Part D and its beneficiaries, $700 billion.2

Range of PBM Savings: Available PBM savings for individual plan sponsors can range from 20% for those that make limited use of PBM tools to 50% for those that adopt best practices recommended by PBMs.

Additional Savings with Best Practices: If all plan sponsors adopt PBM-recommended best practices, projected prescription drug expenditures could fall by an additional $550 billion over the next decade. Of the $550 billion in additional PBM savings, commercial plan sponsors and their members could save $360 billion; Medicare Part D and its beneficiaries, $190 billion.

Lost Savings if PBM Tools are Limited: Limiting PBM tools could increase projected prescription drug costs by more than $550 billion over the next decade. Drug costs could rise by more than $360 billion in the commercial sector and more than $190 billion in Medicare Part D.

PBM Savings and Jobs: Annual savings generated by PBMs for the commercial sector will cover the cost of more than 700,000 jobs in 2012. By adopting PBM-recommended best practices, commercial plan sponsors could cover the cost of more than 200,000 additional jobs next year. If PBM tools are limited, lost savings to the commercial sector could equal the cost of more than 200,000 jobs. Put another way, each 1% decrease in prescription drug expenditures covers the cost of 20,000 jobs nationwide.

Scope of PBMs

PBMs aggregate the buying clout of millions of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. PBMs also use clinical tools aimed at reducing inappropriate prescribing by physicians, reducing medication errors, and improving consumer compliance and health outcomes.^{[citation needed]}

Competition among PBMs

PBMs operate in an extremely demanding marketplace where competition has been described as “vigorous” by the Federal Trade Commission (FTC). Currently, in the United States, a majority of the huge managed prescription drug benefit expenditures are conducted by about 60 PBMs. While many PBMs are independently owned and operated, some are subsidiaries of managed care plans, major chain drug stores, or other retail outlets. PBMs compete to win business by offering their clients a range of sophisticated administrative and clinically based services, enabling them to manage drug spending by enhancing price competition and increasing the cost-effectiveness of medications.^{[citation needed]}

PBM strategies and tools

All PBMs offer a core set of services to manage the cost and utilization of prescription drugs and improve the value of plan sponsors' drug benefits. Some offer additional tools, such as disease management, that can target specific clinical problems for intervention. It is up to the client of the PBM, however, to determine the extent to which these tools will be employed.^{[citation needed]}

Such tools include:^{[citation needed]}

• Pharmacy networks — PBMs build networks of retail pharmacies to provide consumers convenient access to prescriptions at discounted rates. PBMs monitor prescription safety across all of the network pharmacies, alerting pharmacists to potential drug interactions even if a consumer uses multiple pharmacies.

• Prescription discount cards – PBMs may develop and distribute prescription discount cards or “cash cards”, which provide uninsured or underinsured consumers with access to discounted rates on their prescriptions across a pharmacy network. Such cards are useful as they make discounted pricing available to consumers that may otherwise not have any prescription drug benefit plan.

• Mail service pharmacies — PBMs provide highly efficient mail-service pharmacies that supply home-delivered prescriptions with great accuracy and safety and at a substantial savings. In a 2005 report, the FTC determined that PBM-owned mail-order pharmacies (1) offer lower prices on prescription drugs than retail pharmacies and non-PBM owned mail pharmacies; (2) are very effective at capitalizing on opportunities to dispense generic medications; and (3) have incentives closely aligned with their customers: the third-party payers who fund prescription drug care. The Government Accountability Office (GAO) has also found that mail-order pharmacies in the Federal Employees Health Benefits Program (FEHBP) offer substantial savings, especially when compared to retail pharmacies. According to January 2003 GAO report examining cost savings with mail-order pharmacies under FEHBP, the average mail-order pharmacy price for prescription drugs was 27 percent lower for brand name drugs and 53 percent lower for generic drugs than the price paid to retail pharmacies by cash-paying customers. According to GAO, “enrollees in the plans reviewed had wide access to retail pharmacies, coverage of most drugs, and benefited from cost savings generated by the PBMs. Enrollees typically paid lower out-of-pocket costs for prescriptions filled through mail-order pharmacies and benefited from other savings that reduced plans’ costs and therefore helped to lessen rising premiums.

The shipment of drugs through the mail and parcel post is sometimes a concern for temperature-sensitive pharmaceuticals. Uncontrolled shipping conditions can include high and low temperatures outside of the listed storage conditions for some drugs. For example, the US FDA found the temperature in a mail box in the sun could reach 136°F (58°C) while the ambient air temperature was 101°F (38°C). Shipment by express mail and couriers reduces transit time and often involves delivery to the door, rather than a mail box. The use of insulated shipping containers also helps control drug temperatures, reducing risks to drug safety and efficacy.

• Formularies — PBMs use panels of independent physicians, pharmacists, and other clinical experts to develop lists of drugs approved for reimbursement in order to encourage clinically appropriate and cost-effective prescribing; PBM clients always have the final say over what drugs are included on the formulary that they offer to their employees or members.

• Plan design — PBMs advise their clients on ways to structure drug benefits to encourage the use of lower cost drug alternatives — such as generics — when appropriate.This is done by setting plans up with different copay tiers, in this case the client will apply a lower copay for generic drugs than it would for brand drugs. The PBMs’ role is advisory only; the client retains all responsibility for establishing the plan design.

• Electronic prescribing (E-prescribing) — PBMs have pioneered the use of cutting-edge e-prescribing technology, which provides physicians with clinical and cost information on prescription options that allows them to better counsel consumers on which medications—including various lower cost options—will be the safest and most affordable choices. PBMs led the effort to increase the use of e-prescribing in Medicare. Financial incentives for physicians to adopt health information technology (HIT) included in the recent economic stimulus bill will increase the number of prescribers using e-prescribing to more than 75 percent over the next five years—nearly double the rate of use anticipated after passage of last year’s e-prescribing legislation. Research has found that e-prescribing will help prevent 3.5 million harmful medication errors and save the federal government $22 billion in drug and medical costs over the next 10 years, offsetting the projected $19 billion in federal outlays to modernize the nation’s HIT infrastructure under the American Recovery and Reinvestment Act (ARRA).

• Manufacturer discounts — PBMs pool purchasing power to negotiate substantial discounts from pharmaceutical manufacturers in order to lower benefit costs for clients and consumers.

• Clinical management — PBMs use a variety of tools such as drug utilization review and disease management to encourage the best clinical outcomes for patients.

Biogenerics

PBMs have been strong proponents in the creation of an U.S. Food and Drug Administration (FDA) pathway to approve generic versions of expensive drugs that treat conditions like Alzheimer's, rheumatoid arthritis and multiple sclerosis. So-called biogenerics legislation that does not grant brand name drug manufacturers monopoly pricing power is strongly supported by PBMs, AARP, AFL-CIO, the Ford Motor Company, and dozens of other consumer, labor, and employer organizations concerned about runaway health care costs in both the private and public sector. A recent Federal Trade Commission (FTC) found that patents for biologic products already provide enough incentives for innovation and that additional periods of exclusivity would "not spur the creation of a new biologic drug or indication" and "imperils" the benefits of the approval process.

See also

• Online pharmacy

Bibliography

• A Garrett & R Garis, Leveling the Playing Field in the Pharmacy Benefit Management Industry, 42 Valparaiso University Law Review 33-80 (2007)

Correct citation: 42 Val. U.L. Rev. 33

External links

• Pharmacy Benefit Management Institute list of PBM companies