Pharmacy Benefit Management Fees
One of the most challenging aspects of health plan contracting relates to Pharmacy Benefit Management (PBM). The challenge relates primarily to the incredible complexity of PBM pricing methodologies. For example, a basic PBM contract typically has five variable cost components:
- Ingredient Cost
The actual cost of the medication which is paid to the local pharmacy or to the mail-order pharmacy (often owned by PBM). This cost is expresses as a percentage discount off of the Average Wholesale Price (AWP) of the drug and varies depending on whether the drug is a Generic or Brand, whether the prescription is filled at a Retail Pharmacy or through Mail-order, which pharmacy network the health plan utilizes and the specific prescription (Rx) drug plan design. Typically expressed as "AWP minus xx%" or "AWP-15%".
- Dispensing Fee
Fee paid to the pharmacy for literally putting the pills in the bottle. Often zero for mail-order. Typically expressed as "$x.xx per prescription" or "$2.00 per script".
- Administrative Fee
Fee paid to the PBM for administering the pharmacy benefit program. Typically expressed as "$x.xx per prescription" or "$0.75 per script".
- Rebates
Probably the most elusive component of a PBM contract, rebate income is the amount of money received by the PBM from the pharmaceutical companies for distributing large quantities of certain drugs. Rebate revenue is a consideration in formulary development and a major source of revenue for the PBM. Aggressive health plan PBM contracts include a portion of the rebate revenue payable to the health plan. Again, this component will vary based on retail pharmacy versus mail-order and Rx plan design. Typically expressed as "$x.xx per prescription" or "$2.50 per script".
- Special Program Fees
An area of special attention in PBM pricing should be the multitude of special programs such as "Step Therapy" and "Care Management" modules. While these programs can often deliver a positive Return on Investment (ROI), they can also become expensive. Typically expressed as "$x.xx Per Member Per Month (PMPM)" or "$0.04 PMPM" or as "$x.xx per claim" or "$0.02 per claim". "They're so small. How much can they add up to?" you ask. You'd be surprised.
And that's just the beginning. Its no wonder the average employer-sponsored health plan has trouble determining whether they have a "good deal" or not. For example, let's say you're trying to compare contracts from two different PBMs. Which one of the following contracts is best for your organization?
Contract A
| Retail Pharmacy | Mail-order Pharmacy | |||
|---|---|---|---|---|
| Brand | Generic | Brand | Generic | |
| (Contract A Data) | ||||
| Ingredient Cost | AWP-13% | AWP-13% | AWP-18% | AWP-50% |
| Dispensing Fee | $1.75/Rx | $1.75/Rx | $0.00/Rx | $0.00/Rx |
| Administrative Fee | $0.50/Rx | $0.50/Rx | $0.50/Rx | $0.50/Rx |
| Rebates | $1.50/Rx | $1.50/Rx | $3.75/Rx | $3.75/Rx |
Contract B
| Retail Pharmacy | Mail-order Pharmacy | |||
|---|---|---|---|---|
| Brand | Generic | Brand | Generic | |
| (Contract B Data) | ||||
| Ingredient Cost | AWP-14% | AWP-14% | AWP-19% | AWP-50% |
| Dispensing Fee | $2.25/Rx | $2.25/Rx | $0.15/Rx | $0.15/Rx |
| Administrative Fee | $0.35/Rx | $0.35/Rx | $0.45/Rx | $0.45/Rx |
| Rebates | $1.25/Rx | $1.25/Rx | $3.25/Rx | $3.25/Rx |
Confusing? And that's just four of the pricing components. Well, if it makes you feel any better, we can't tell either - but that's because we don't have enough information here. In order to make a valid analysis, we'd need to gather your past claims data, review your actual plan design and read every paragraph of each PBM contract. And that's why we have a PBM expert on staff at NextLogical to ensure that our clients get the very best deal they possibly can.
Wondering about your current PBM contract? Why not ask us take a look at it? In many cases, our analysis is free.