Pharmacy Benefit Managers come in two different forms: fiduciary and non-fiduciary. Fiduciary PBMs prioritize the interests of their clients above all else, operating with full price transparency and eliminating every conflict of interest, while non-fiduciary PBMs (also called traditional PBMs) do not have a legal obligation to act in the best interest of their clients. Because of this lack of obligation, non-fiduciary PBMs often use various strategies to collect hidden profits, such as:
Spread Pricing: Charging clients a higher price for a drug than they reimburse pharmacies for dispensing it, and then retaining the difference or “spread” as profit.
Exclusion of Low-Cost Alternatives: Requiring patients to take a drug with a higher sticker price when a cheaper alternative is available because that drug yields higher rebates or margins for the PBMs own profit.
These represent only two examples of the many strategies PBMs use to hide costs, with the common thread being that PBMs use these tools to maximize their own profits. These practices lead clients to (unknowingly) waste money – funds they could use elsewhere – to pay for these hidden costs.
Non-fiduciary PBMs exploit their client’s finances when they should be stewarding them.
Formularies as a Target for Hidden Profits
Formularies are curated lists of drugs developed by health plans, insurance providers, or PBMs to serve as a guide for patients, healthcare providers, and pharmacies to understand which medications are available under the plan and under what conditions. Unfortunately, traditional PBMs have identified formularies as one target for maximizing hidden profits.
Drug manufacturers provide kickbacks, or “rebates,” to PBMs as an incentive for placing their drugs on a “preferred tier” of drugs, making physicians more likely to prescribe them and patients more likely to purchase them, increasing the manufacturer’s sales. After the patient purchases the medication, the manufacturer pays the PBM the “rebate.” While the intention is for PBMs to then share the rebate with the employer or insurer, they often choose to keep a significant portion of it for their own revenue. This leads to increased costs for employers because while these rebates lower the net cost for PBMs, employers rarely receive the full benefit of these rebates. They may also pay higher gross prices for drugs on the formulary because rebates are tied to higher list prices.
These practices are common among non-fiduciary PBMs because they have no legal obligation to act in the best interest of their clients. With a primary focus on maximizing profits, they are actually hiding costs from health plans, employers, and patients. Fiduciary PBMs like US-Rx Care, on the other hand, prioritize the interests of their clients above all else and operate with full transparency to eliminate every conflict of interest.
Pharmacy Restrictions Often Result in Hidden Profits
By limiting pharmacy access to their own mail-order and specialty pharmacies for certain medications, PBMs can use various tactics to maximize profits at their client’s expense.
For instance, a claim for a generic medication, which would typically be priced competitively under retail pharmacy rate guarantees (e.g., AWP – 85%), might be processed instead by the PBM’s specialty pharmacy at a significantly higher cost, while still meeting contractual specialty rate guarantees (e.g., AWP – 30%). Other tactics include repackaging medications with unique NDCs and higher AWPs.
Additionally, large PBMs receive “class of trade” financial incentives for their mail-order and specialty pharmacies, which are often tied to the cost of the medication. These incentives encourage PBMs to dispense higher-cost drugs through their pharmacies, rather than the most clinically appropriate and cost-effective options.
The Role of Fiduciary PBMs and Utilization Management
US-Rx Care provides employers with two options for managing their pharmacy benefits: full pharmacy benefits management or behind-the-scenes utilization management. Utilization management under a fiduciary PBM works by using a clinical lens to review prescription drug claims and minimize wasteful drug spending, also called drug utilization review (DUR). In a DUR, a team of healthcare professionals reviews the claims to ensure members receive the best possible medication that offers the same clinical outcomes at the lowest available price. By making these decisions alongside healthcare professionals, fiduciary PBMs minimize waste by focusing on the best interests of the employer and employee.
Benefits of Partnering with a Fiduciary PBM
If an employer previously worked with a non-fiduciary PBM, a fiduciary PBM can help them reduce wasteful spending and lower drug costs by removing hidden costs they may not have been aware of, given the ways in which traditional PBMs hide these costs in contracts and through a lack of overall transparency. Fiduciary PBMs help employers lower costs while simultaneously prioritizing the best outcomes for patients.
Employers are continuing to realize the benefits of working with a fiduciary PBM. After switching to US-Rx Care from a traditional PBM, one multi-state hospital group saved $10 million annually by reducing prescription drug costs for their 42,900 enrollees.1 Similarly, a multi-district educational nonprofit saved over $4 million within four years through elimination of hidden profit schemes and alignment of formulary management with cost-effective and clinical goals.2
To know where to cut waste, it’s important to understand the strategies traditional PBMs use to hide costs for their own financial benefit. As exemplified above, partnering with a trusted fiduciary PBM can result in saving you enormous sums of money – literally millions of dollars- while prioritizing the best outcomes for patients. If you haven’t yet, now’s the time to evaluate your relationship with your current PBM and consider transitioning to a fiduciary PBM model that has your best interests in mind, rather than its own profits.
Sources:
US-Rx Care. Savings Strategies: How US-Rx Care Helped a Multi-State Hospital Group Save More Than $10 Million in Annual Drug Costs.
US-Rx Care. “An Education in Savings: How US-Rx Care Helped a Multi-District Educational Non-Profit Save Millions in Pharmacy Benefits Costs.”
At the U.S. Senate Committee on Health, Education, Labor, and Pensions hearing on September 24, Lars Fruergaard Jørgensen, CEO of Novo Nordisk, addressed the high cost of Ozempic and Wegovy, two of the company’s flagship drugs for diabetes and obesity. Pressed by several committee members, including Senator Bernie Sanders, Jørgensen acknowledged the complex pricing structures in the U.S. pharmaceutical market and agreed to collaborate with the Committee and Pharmacy Benefits Managers (PBMs) to find pricing solutions.
How PBM Pricing Structures Drive Up Costs
PBMs act as intermediaries between insurance companies, pharmacies, drug manufacturers, and patients. They decide which drugs will be included under specific health plans, negotiate rebates and discounts with pharmaceutical companies, and work with pharmacies to set pricing for dispensing medications. While these responsibilities may sound straightforward, PBMs’ profit-driven practices add layers of complexity and cost to the system.
Under the PBM rebate model, pharmaceutical companies provide rebates to PBMs as an incentive for formulary placement, or placement on a “preferred tier” that will be more likely to be prescribed and purchased, increasing the manufacturer’s sales. PBMs also negotiate with the drug manufacturer based on how many patients are likely to use the drug and its competition. These rebates are often structured as a percentage of the drug’s Wholesale Acquisition Cost (WAC) – with average rebates close to 30% of the drug’s WAC.1 The rebate is then paid to the PBM after the medication is dispensed and purchased by a patient. PBMs then either share the rebate with the health plan (employer or insurer), or retain a portion of the rebate for their own revenue. The exact split of the revenue depends on contractual agreements between the PBM and the employer.
Drug manufacturers also classify supply chain organizations under a system called “class of trade” (COT), which allows them to offer different pricing structures or discounts based on categorization, such as retail pharmacies, wholesalers, or hospitals. However, there is no set list or standardized procedure for how PBMs categorize.
The PBM’s mail order or specialty pharmacy typically sits under a different COT than the PBM itself because it’s a subsidiary. The catch? There is a COT purchasing contribution that the manufacturer also pays to this subsidiary, and this usually amounts to 30% – 40% of the WAC. Because it’s a subsidiary, this amount is reported separately and not included in the PBM report and investigations.
Not only is this lack of transparency problematic, but the higher the drug price, the more the PBM benefits. Sometimes PBMs will even require patients to take a drug with a higher sticker price when a cheaper alternative is available. These high drug prices are then passed on to employers in the form of higher insurance premiums for their employees’ coverage.
Furthermore, pharmaceutical companies have been found to pay some physicians 5% of the WAC to prescribe their medication instead of their competitor’s medication as a first-line agent, or the most effective and low-risk option, even in cases where it is a last-line agent, or the least effective and highest risk.2
Conflicts of Interest & Holding Employers Accountable
The Consolidated Appropriations Act (CAA) now holds employers responsible for ensuring that their benefits vendors comply with fiduciary standards. However, PBM brokers are often incentivized to prioritize PBMs’ interests over those of employers and employees, perpetuating a system that benefits the PBMs and drug manufacturers at everyone else’s expense.
With growing public awareness and heightened scrutiny from regulatory bodies like the FTC and Senate committees, employers who fail to address these conflicts risk reputational and financial consequences as well as having their senior officers face personal liability.
Employers Must Lead the Change
US-Rx Care operates as an independent third-party partner, bridging the gap between payers and drug manufacturers while emphasizing a fiduciary approach to drug utilization management. We put your employees’ health outcomes and cost savings first. Unlike non-fiduciary PBMs, we focus on lowering costs and delivering better care without hidden agendas.
In addition, Partner with a non-conflicted pharmacy consultant to ensure your PBM contracts reflect your goals and values. Learn more about controlling costs without sacrificing quality of care.Contact us today for a list of non-conflicted consultants or to discuss how we can address your PBM-related challenges. Take back control of your healthcare spending.
American pharmaceutical companies are arguably the world’s most inventive, regularly introducing specialty medications for an array of chronic health conditions that are on the rise. But they don’t do it for free, and the costs are becoming more and more difficult for employers to carry.
As of 2020, 6 in 10 adults in the U.S. had a chronic disease.1 Specialty drugs to treat these conditions now account for over 50% of total prescription drug spending despite being used by only 2.5% of patients.2 The good news is that the right pharmacy benefit management partner can dramatically reduce these costs for both employers and employees.
The Specialty Drug Dilemma
Specialty drugs are innovative treatments designed to address complex or chronic conditions such as multiple sclerosis, cancer, and rheumatoid arthritis. While these medications can greatly improve quality of life, they come with a hefty price tag. The average annual cost for a specialty drug is a staggering $84,000,3 more than ten times the cost of regular prescription medications.
The explosive growth in specialty drug costs is putting immense pressure on healthcare budgets, with estimates indicating that specialty drug spending would add up to $311 billion for 2023.4 For employers and plan sponsors, this trend poses a significant threat to the sustainability of their pharmacy benefit plans.
Strategies for Plan Sponsors and Benefits Advisors
To shelter employees and clients from the enormous costs of specialty drugs, plan sponsors and benefits advisors should consider the following approaches:
Utilize Specialty Pharmaceutical Programs: Well-designed specialty drug management programs can help achieve lower costs without compromising care quality.
Employ Utilization Management Techniques: Strategies such as prior authorization, step therapy, and prescription duration limits can help control costs while ensuring appropriate medication use.
Leverage Data Analytics: Regularly analyzing drug spending across both medical and pharmacy benefits can inform plan design decisions and identify cost-saving opportunities.
A fiduciary Pharmacy Benefit Manager (PBM) like US-Rx Care can be a game-changer in managing specialty drug costs. Unlike traditional PBMs, fiduciary PBMs are legally obligated to act in the best interest of their clients, ensuring transparency and alignment of incentives. US-Rx Care offers several advantages as a fiduciary PBM:
Transparent Pricing: Full disclosure of all revenue sources, eliminating hidden fees and conflicts of interest.
Customized Formularies: Tailored drug lists that balance clinical efficacy with cost-effectiveness.
Advanced Analytics: Sophisticated data analysis to identify trends and optimization opportunities.
Clinical Expertise: Access to pharmacists and healthcare professionals for personalized guidance.
Right Rx Services: An Alternative Approach
For organizations not ready to change their PBM, US-Rx Care’s Right Rx services offer an alternative path to cost optimization. These services work alongside existing PBM arrangements to:
Analyze current drug spending and utilization patterns
Identify opportunities for cost savings without compromising care
Implement targeted interventions to optimize prescription drug use
Provide ongoing monitoring and adjustment of strategies
By engaging Right Rx services, employers can achieve significant cost savings while maintaining their current PBM relationship, offering a flexible approach to pharmacy benefit management. By advocating strictly for your enrollees’ best interests, Right Rx saves an average of $15 – $25 per enrollee per month, with over 30% or greater out-of-pocket savings for non-specialty, specialty, and J-code prescription drugs.
Choose the Solution That Works For, Not Against, Your Plan
As a leader in the fiduciary PBM space, US-Rx Care has the clinical and pharmacy benefit administration expertise necessary to sharply cut the costs of needed prescription drugs. Our full PBM solution is proven to save up to 50% on pharmacy benefit costs in just 12 months for self-insured employers. Alternatively, employers who wish to keep their PBMs can contract out utilization management and prior authorization functions to our clinically-based Right Rx program. Whether your organization is looking for partial or full pharmacy optimization, US-Rx Care has the tools and cost-saving frameworks in place to deliver the savings and plan value your enrollees deserve.
Learn more about US-Rx Care’s pharmacy benefits services to discover which solution is best for your plan, and take control of rising prescription drug costs today.
Centers for Disease Control and Prevention, “Chronic Diseases in America.” https://cdc.gov/chronicdisease/resources/infographic/chronic-diseases.htm
IQVIA Institute for Human Data Science. “The Use of Medicines in the U.S. 2022.”
AARP Public Policy Institute. “Trends in Retail Prices of Specialty Prescription Drugs Widely Used by Older Americans: 2006 to 2015.”
IQVIA Institute for Human Data Science: “The Global Use of Medicine in 2019 and Outlook to 2023.”
The list of ways non-fiduciary Pharmacy Benefits Managers unfairly profit at the expense of employers and plan members is a long one -– from excessive drug mark-ups and spread pricing to retaining rebate revenue and limitations or charging for access to claims and cost data. A lack of transparency and systemic complexity have made it difficult for plan sponsors to identify conflicts of interest or unscrupulous pricing strategies.
Most worrisome: This is not new. The bright spotlight of the CAA has only begun illuminating the widespread prevalence of such conflicts of interest, and has placed the ultimate onus on plan sponsors – not PBMs – to uphold fiduciary standards (learn more about employer liability in our recent white paper).
Because PBMs themselves are not directly culpable for fiduciary violations under the CAA, many are likely to continue traditional processes lacking transparency and accountability. That makes it even more crucial for employers to recognize potential PBM biases and take immediate steps to ensure fiduciary compliance, or risk penalties and litigation.
Red Flags: Identifying a Fiduciary PBM vs. Non-Fiduciary PBM
One of the best means to avoid risks from CAA non-compliance is to work with a fiduciary Pharmacy Benefits Manager. There are significant distinctions between a fiduciary PBM, such as US-Rx Care, and a non-fiduciary PBM – and all of those differences come at a high cost to employers or their plan members.
Important to keep in mind is that a fiduciary PBM is not the same as “a transparent, non-fiduciary PBM”. Fiduciary is a term defined under ERISA that has legal meaning, while the term “transparent” leaves it up to the PBM to define what that means. For example, a PBM can have a transparent pricing model but still have conflicts of interest, such as owning the mail and/or specialty pharmacy. Similarly, PBMs that simply accept “claims fiduciary” roles are committing to process claims accurately, but not accepting full fiduciary responsibility.
Fiduciary PBM: Fully transparent administrative charges as the sole source of revenue to the PBM
VS.
Non-Fiduciary PBM: Hidden sources of revenue that drive up costs for the employer or plan members
Fiduciary PBM: The PBM does not own a retail, mail-order or specialty pharmacy, which would represent a conflict-of-interest
VS.
Non-Fiduciary PBM: May own a retail, mail-order or specialty pharmacy, and financially benefit from higher drug costs
Fiduciary PBM: Offers transparent pharmacy network pricing (with no PBM markup, spread pricing, or hidden profits)
VS.
Non-Fiduciary PBM: Pharmacy network pricing is not transparent, and often have PBM markups, spread pricing or other hidden profits
Fiduciary PBM:
Maintains 100% pass-through of all manufacturer revenue of any kind and by any definition
VS.
Non-Fiduciary PBM: Often retains a portion of rebates for their own profit versus passing the full value onto the plan sponsor
Fiduciary PBM: Employers have full ownership and access to claims data, which allows them to maintain total oversight of service providers and responsibly manage plan assets
VS.
Non-Fiduciary PBM: May not offer full, unredacted access to claim-level data or may charge plan sponsors to access claims history and cost data
Fiduciary PBM: Clinical guidelines and prior authorization criteria that are based strictly on national standards of care and proven best practices.
VS.
Non-Fiduciary PBM: Watered down, clinical guidelines and prior authorization criteria based on drug manufacturer incentives and corresponding manufacturer requirements that encourage utilization of high-cost medications over lower cost therapeutic equivalents.
Fiduciary PBM: Clinical guidelines and prior authorization criteria that are based strictly on national standards of care and proven best practices.
VS.
Non-Fiduciary PBM: Watered down, clinical guidelines and prior authorization criteria based on drug manufacturer incentives and corresponding manufacturer requirements that encourage utilization of high-cost medications over lower cost therapeutic equivalents.
Fiduciary PBM: Fully transparent administrative charges as the sole source of revenue to the PBM
VS.
Non-Fiduciary PBM: Hidden sources of revenue that drive up costs for the employer or plan members
Fiduciary PBM: The PBM does not own a retail, mail-order or specialty pharmacy, which would represent a conflict-of-interest
VS.
Non-Fiduciary PBM: May own a retail, mail-order or specialty pharmacy, and financially benefit from higher drug costs
Fiduciary PBM: Offers transparent pharmacy network pricing (with no PBM markup, spread pricing, or hidden profits)
VS.
Non-Fiduciary PBM: Pharmacy network pricing is not transparent, and often have PBM markups, spread pricing or other hidden profits
Fiduciary PBM:
Maintains 100% pass-through of all manufacturer revenue of any kind and by any definition
VS.
Non-Fiduciary PBM: Often retains a portion of rebates for their own profit versus passing the full value onto the plan sponsor
Fiduciary PBM: Employers have full ownership and access to claims data, which allows them to maintain total oversight of service providers and responsibly manage plan assets
VS.
Non-Fiduciary PBM: May not offer full, unredacted access to claim-level data or may charge plan sponsors to access claims history and cost data
Fiduciary PBM: Clinical guidelines and prior authorization criteria that are based strictly on national standards of care and proven best practices.
VS.
Non-Fiduciary PBM: Watered down, clinical guidelines and prior authorization criteria based on drug manufacturer incentives and corresponding manufacturer requirements that encourage utilization of high-cost medications over lower cost therapeutic equivalents.
The question facing many self-funded employers now is how to uphold fiduciary compliance, ensuring their plan acts solely in the interest of its participants – and that starts with avoiding existing PBM conflicts-of-interest.
Mitigating PBM Conflicts of Interest & Ensuring CAA Compliance
Managing pharmacy benefits and ensuring fiduciary standards are met is a difficult landscape for many employers to navigate. Historically, plan sponsors have relied on their PBM to oversee all aspects of plan management, and that responsibility, along with guarding against unscrupulous PBM profit tactics, has now shifted to the employers themselves.
Understand Your Fiduciary Responsibility
Ensuring compliance starts with understanding self-funded employers’ fiduciary obligations under the CAA. The legislation, which went into effect in December 2022, holds employers accountable to their fiduciary role, such as paying no more than “reasonable” fees to related services. That includes verifying that pharmacy benefits managers aren’t unduly profiting at the plan’s expense. Learn more about employers’ fiduciary responsibilities in this recent white paper.
Ensure Full Access to Plan Data
Without complete access to pharmacy benefits information, including claims and cost data, it’s difficult for employers to maintain full oversight of service providers and effectively manage plan assets. Start by verifying that your PBM contract provides for complete access to data; if it doesn’t, work toward resolving that as quickly as possible.
Implement Recurring Audit Processes
Regularly auditing your pharmacy benefits plan and your PBM contract can help identify potential areas of non-compliance, such as PBM mark ups on dispensed medications, hidden cost structures or unclear language even for basic items such as the definition of brand versus generic drug or the definition of manufacturer rebates. This process can also help you assess overall plan performance and evaluate opportunities for cost-savings or other improvements.
Partner with a Fiduciary PBM
One of the simplest actions employers can take to avoid CAA non-compliance is choosing to partner with a fiduciary pharmacy benefits manager like US-Rx Care. Working with a fiduciary PBM guarantees CAA compliance for self-funded employers, and ensures your pharmacy benefits plan offers the greatest value to plan participants as well. Learn more about how partnering with US-Rx Care can bring your organization and your employees significant cost savings on pharmacy benefits and simultaneously ensure CAA compliance by scheduling a consultation.
The Consolidated Appropriations Act of 2021 (CAA) is making major waves in the self-insured employer space, with a core focus on transparency and proper stewardship of employee benefit plans. However, for over a year, the CAA lay relatively dormant, with delays in enforcement and litigation — until Johnson & Johnson (J&J).
CAA Litigation Has Arrived — For Employers and Corporate Officers
The J&J lawsuit represents the first landmark in CAA litigation, with an unprecedented employee class action lawsuit against excessive prescription drug spending. Digging deeper, we find that J&J’s benefits consultant and pharmacy benefits manager (PBM) allegedly served as the primary drivers of these exorbitant pharmacy costs, preventing a fair and open RFP due to rampant conflicts of interest and hidden profits. The J&J suit is only the beginning — we’re already seeing several new lawsuits come to light as employers are now held accountable for the fiduciary non-compliance of their benefits vendors.
The story doesn’t stop there. Not only are companies as a whole on the hook for fiduciary obligations across their plans, but chief officers themselves are now personally held liable as well. CAA enforcement letters, released by the Centers for Medicare & Medicaid Services (CMS) with state-specific provisions, are now calling for thorough compliance investigations and, if necessary, enforcement action on both personal and enterprise levels.
Three Steps Employers Can Take to Root Out Non-Compliance
Recent legal action has made one thing clear: the CAA can no longer be ignored. Employers can no longer claim ignorance of CAA requirements if non-compliance is found, even among their benefits vendors and service providers. The question for many employers now is how to ensure fiduciary compliance with existing vendors, especially PBMs that coordinate drug pricing and administration between pharmacies, drug manufacturers, and health plans. Per the CAA, a plan sponsor’s fiduciary duty is to ensure the plan solely acts in the interest of its participants and beneficiaries.
How does this look in practice?
Demand alignment and transparency from every vendor and service provider that touches your pharmacy plan.
Certify that every vendor’s compensation is reasonable and holds no conflicts of interest that undermine the value of the plan.
Gain full access to your healthcare data to maintain total oversight over service providers and responsibly manage plan assets.
By comparing prescription drug cost trends and employee cost-sharing structures against manufacturer rebates and administrative fees, employers can identify how appropriately plan assets are being managed, as well as any sources of fiduciary non-compliance.
This process, however, is time-consuming and costly, and it grows even more complex when vendors do not embed fiduciary compliance from the start. That’s why more employers are partnering with a fiduciary PBM like US-Rx Care. When you know your PBM is fully compliant you can gain peace of mind that your pharmacy benefit plan is offering the most value to your participants without opening the door to corporate and personal legal action.
