Add Value to Pharmacy Benefit by Driving Out Waste

As fiduciaries, plan sponsors have a responsibility to provide proper oversight of what their pharmacy benefit plan spends money on. Plan sponsors may feel their fiduciary duty is met by conducting regular competitive bidding of key vendors. While this is important, there are other aspects to consider that directly impact the bottom line.

Prudent oversight of the pharmacy benefit starts with a well-run and properly analyzed competitive bid process to select a Pharmacy Benefit Manager (PBM). PBMs provide enormous value in leveraging competitive forces in the marketplace from manufacturers, pharmacies, wholesalers, distributors, and others. The value your plan receives (or foregoes) is dependent on your negotiated contract; however, simply having a signed contract is not enough either.

With pharmacy benefits becoming increasingly complex, the opportunities for fraud, waste, and abuse are numerous if oversight is left up to the PBM. Continued oversight of the PBM’s formulary, prior authorization activities, utilization management programs, and general audits and monitoring, are necessary. This oversight ensures cost-effectiveness and affordability of employer-sponsored coverage for employees and their families.

Formulary Management

Prescription drug formularies are a useful tool to promote more effective medications and lower costs for patients and plans. A PBM’s formulary will remove many wasteful medications and drive rebate value. Plan sponsors should expect rebates to be returned at 100%, with customary returns on gross costs at 25% or more.

However, PBM formularies – like PBM contracts – are not created equal. In 2019, The Commonwealth Fund studied 15 plan sponsors and found they could lower drug costs and out-of-pocket spending for patients between 3-24% by removing high-cost, low-value drugs from their PBM’s formulary. (A list of the wasteful drugs identified in the report can be found on their website.) This illustrates the importance for plan sponsors to identify and partner with trusted industry experts who work on their behalf.

Prior Authorization (PA)

The large PBMs review and approve millions of claims each day. They are under pressure from doctors, pharmacies, patients – and sometimes even payors – to expedite the review and approval of these claims. PBMs make money reviewing claims requiring a PA and benefit even more when they are approved.

When selecting a PBM, compare fees for PAs and ask for the PBM’s rate of approval. Approval and denial rates can vary greatly by drug/therapy class, and a cost-benefit analysis may show where requiring a PA is not financially appropriate. If PA charges are exceeding drug costs for a therapy class or given drug(s), it may be time to sunset the protocol(s) and save the administrative fees.

To take PA oversight to the next level, plan sponsors may consider using a third-party vendor separate from the PBM. As part of our high-dollar review program, National CooperativeRx identifies PA issues.

Our clinical team recently reviewed a PA request for a bone disorder drug that did not appear to meet guidelines. Our team pushed for an external review, which determined the initial approval was an error. The cost avoidance – which amounted to $1.3 million to the plan – also protected the patient from the financial costs and side effects of a medication they may not benefit from.

Pharmacy Benefit Utilization Management

PBMs have many programs claiming to remove waste and add value. In addition to formularies and PA requirements, PBMs have step therapy programs, quantity limits, and safety edits – just to name a few. Understandably, plan sponsors may feel the quantity and complexities of these programs cover them well.

Pharma, pharmacies, and PBMs all fill significant needs and provide great value to patients and plan sponsors; however, they’re also well-versed in balancing their own interests. Plans that lack proper oversight provide participants in the drug distribution chain opportunities to take advantage of the plan.

Industry expertise and advocacy are key to mitigating costs. For example, a member-group recently joined National CooperativeRx to gain more competitive contract terms and is already experiencing the benefits of oversight; a participant with the group was taking a $20,000 per month drug – which was dispensed above the FDA-approved maximum limit – for a condition the patient did not have. The prior PBM allowed this, despite a discrepancy between the doctor’s responses and 19 years of physician notes with no diagnosis of the condition. This patient is now taking a $600 per month medication, which matches their actual diagnosis.

In another instance, National CooperativeRx’s clinical team found a drug can be purchased in a 30-day or 60-day supply for the same price. Many in the supply chain would prefer this be filled at the 30-day supply. When appropriate, filling the 60-day supply results in approximately $37,000 in annual savings per intervention and fewer refills for patients.

Pharmacy Benefit Audits and Monitoring

Data access is critical to proper oversight of the pharmacy benefit, and both simple and complex audits can be done to ensure the plan is being administered properly and to intent. Some plan sponsors may be denied access to their claims data or quoted a fee by their vendor to get a simple claims file. Be sure that any contract with a vendor provides you access to your plan’s data.

Common vendor-led audits are done on contract terms, plan setup, and rebates. Plan sponsors can also do limited audits on their own. Calculations to ensure that contract discounts are implemented in a timely manner or that monthly rebate guarantees are paid properly are good places to start. Rebate payments may be significantly off if the PBM is inadvertently paying old rates, inappropriately (re)classifying claims as ones that do not receive a rebate, or taking advantage of contract language that may have been unclear.

Regular audits and monitoring across National CooperativeRx membership have resulted in swift corrective action and financial reconciliation. Believing your PBM is perfect is an unrealistic expectation and can prove costly.

As the cost of the pharmacy benefit has continued to rise, so has the importance of proper and ongoing oversight. A plan sponsor’s role as a fiduciary doesn’t end when a contract is signed with a PBM. Plan sponsors need to partner with trusted vendors, continually review plan performance, and engage their PBM to drive value, deliver desired results, and promote favorable outcomes.