June 22, 2018

Shifting focus from PBM discounts to transparency

Despite advancements in the healthcare management arena, PBM selection process has remain largely unchanged.

Pattern Overlay

Despite significant advancements in the healthcare management arena, the pharmacy benefit manager (PBM) selection process has remain largely unchanged.

Typically, when an employer’s contract is set to expire, they enlist the help of a third party consultant to assist in the PBM bid process. The consultant manages the RFP process, including a routine question and answer section. In the end, the PBM supplies a price quote based on rates they have pre-negotiated with the consulting firm. The savings promised through discounts two to three percentage points lower than their previous contract fail to materialize into long-term trend management.

This is largely due to a growing trend in which traditional cost savings programs, like prior authorization and step therapy, are manipulated by PBMs to drive additional revenue from manufacturers.

Transparency surrounding these practices is beginning to disrupt this tired cycle and shift focus from discounts off the average wholesale price to independent clinical oversight that achieves the lowest net cost on prescriptions.

Without this level of transparency and independent clinical oversight, PBMs can increase revenue from manufacturers by dictating their own prior authorization criteria, promoting brand-name medications in exchange for additional revenue streams and filling unnecessary prescriptions. As a result, PBMs claim inflated discounts on bids because so much of their revenue is received from manufacturers of expensive brand-name medications.

Here’s an example of successful management: Repatha is a drug for managing high cholesterol that averages $1,200 per fill.  Instead of simply approving a prior authorization because the member had an approved diagnosis, our clinical team determined that the member never tried a lower cost alternative. Through an independent clinical review, a generic statin alternative was identified and recommended. The member has been compliant on the statin for 5 months at a monthly cost of $17.  The company will save over $14,000 per year.

Another example: Our medical department received a prior authorization request for Epclusa, a specialty medication for Hepatitis C. The cost of this medication averages around $75,000 for 3 months of treatment. Healthgram’s clinical team managed the prior authorization for this drug and after review, recommended Mavyret, a lower-cost and shorter treatment alternative medication. Through proper prior authorization oversight, we were able to lower the cost of treatment to $28,000, saving the plan around $47,000.

What does this mean for employers? Without independent clinical oversight, costs may continue to rise as PBMs create prior authorization criteria approved by the manufacturer, while discreetly accept revenue from them. There’s a significant conflict of interest: The organization that manufactures the drug and the pharmacy that dispenses the drug should not be making the decision about who gets the drug.  In order to make critically important medications available to employees and offer a competitive pharmacy benefit, employers must seek out PBM partners who use independent and transparent clinical criteria to drive to lowest net cost.


When evaluating pharmacy benefit managers, consider these best practices for transparent alignment:

  1. Demand transparency beyond a pass-through arrangement. Ensure aligned interests with your PBM by requesting revenue breakdowns from clients and manufacturers over the life of the contract.
  2. Require independent, clinically-focused prior authorization – If your PBM owns the specialty or mail-order pharmacy, they should not be determining who should receive the medication. If this is not possible, have the PBM supply an approval and denial report showing the actions they have taken with medications that require PA.
  3. Only implement utilization programs that drive toward generics – and avoid step therapies that steer towards brand name medications.
  4. Seek acquisition based pricing for specialty claims – Contracts based on a discount off AWP results in huge revenues for the PBM that only increase as specialty drug costs rise.
  5. Add a 90-day retail maintenance network in place of mail order – Many mail order pharmacies are justifying their existence by claiming large discounts and better adherence rates. In reality, the discounts are negated by misaligned copays while auto-refill programs contribute to stockpiling and filling unnecessary orders. Most importantly, retail pharmacies maintain the critical pharmacist/patient relationship.
  6. Educate your members on highest-value pharmacies – With transparent pricing at retail, grocery and discount stores like Walmart and Costco, drugs may be significantly less expensive than the big corner drug store.


As a shift to transparency in healthcare disrupts an all too comfortable status quo, employers have an unprecedented opportunity to impact change and drive savings. Contact our team for help aligning your company with a transparent PBM partner.