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.
For years, pharmacy benefits managers (PBMs) were left alone to oversee every part of a pharmacy benefits plan from behind the scenes. Without close oversight, PBMs manipulate pricing, contract terms, formularies, and pharmacy sourcing to their benefit. Fortunately, with recent changes to pharmacy regulation, PBMs are now under fire to answer for their many conflicts of interest and financial incentives they use to pad their bottom line. As a result, more self-insured employers and brokers are evaluating their contracts for these issues and exploring new options to protect the best interests of their plans.
Spotting the Gaps in Traditional PBM Models
Traditional PBMs, including the “Big Three”, have long been criticized for severely inflating the costs of prescription drugs and embedding conflicts of interest throughout the entire benefit. Boiling it down, these are the top three challenges we see in the traditional model:
Opaque pricing and rebates. Despite negotiating rebates and discounts with manufacturers, PBMs often pass little to none of these savings to the plan. Complex rebate structures and a lack of transparency about rebate distribution ultimately lead to consistent price hikes for needed prescription drugs, leaving plan sponsors unaware if their rebates are being used to lower pharmacy spend or funneled into PBM profits.
Spread pricing. The traditional PBM model often generates gaps in what the PBM charges the plan for a certain medication and how it reimburses the pharmacy — with the PBM extracting profits from the difference, or spread, between those two numbers. This hidden source of revenue can skyrocket drug costs and degrade plan value.
Lack of transparency. PBMs are notorious for a lack of transparency in how they manage a plan’s pharmacy benefit. This includes limited access to data around drug pricing, rebate distribution, and the fees included in the PBM contract. By keeping this data behind closed doors, traditional PBMs are not held accountable for how they manage pharmacy costs.
How a Fiduciary Partner Closes the Gaps
Standing in direct opposition to a traditional PBM is a fiduciary partner — a different type of PBM that is now a requirement for self-insured employers, per the Consolidated Appropriations Act of 2021.1 The fiduciary PBM model represents a fundamental shift in pharmacy benefits administration, shifting the focus from maximizing PBM profits to optimizing client outcomes, both clinically and financially, by:
Prioritizing plan interests. By definition, a fiduciary must hold a deep commitment to promoting the best interests of the plan only. Unlike traditional PBMs, fiduciaries align their solutions with the goals of each employer, eliminating conflicting incentives due to rebates, spread pricing, and other sources of hidden revenue. A fiduciary’s formulary management strategies are solely based on clinical efficacy and cost-effectiveness, ensuring that the best interests of the plan sponsor and enrollees are always top of mind.
Ensuring cost transparency. Instead of keeping employers away from their utilization data, fiduciaries disclose all costs associated with managing the entire pharmacy benefit. Employers receive regular, detailed information about what the plan paid for each medication, including how manufacturer rebates and PBM fees were used. By providing 100% transparency, fiduciary PBMs help plan sponsors understand exactly how plan assets are utilized, helping employers budget accurately and make informed decisions to enhance plan value.
Delivering equitable benefits. Prioritizing the best interests of the plan with complete transparency naturally provides equitable benefits to each enrollee. By focusing on how to best meet clinical needs with cost-effective practices, fiduciary PBMs help plan sponsors make needed medical therapies affordable and accessible to their enrollees, driving better outcomes at a lower cost. This patient-centric approach not only enhances quality of care but also drives consistent, measurable reductions in pharmacy spend.
