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.”