Get the most out of your PBM - pharmacy benefit managers can improve employee health insurance benefits and control costs
More employers are considering and implementing stand-alone pharmacy benefit programs. As carved-out drug programs become more common, employers are learning how to get the most out of what PBMs have to offer.
Companies are asking for–and most of the time receiving–better prices and better managed care services, such as drug utilization review, from their PBMs. The opportunities for savings are so great, it’s probably worth the time for an employer to ask for new bids or renegotiate an existing contract, notes Pam Bertranb, Pharm.D., a consultant with Towers Perrin in Atlanta.
At the same time, PBMs are able to offer more managed care programs than ever before. “So much can be done with the pharmacy benefit to prevent hospitalizations, to make patients feel better or to prevent adverse interactions. It is a big part of the therapeutic arsenal,” says Paul Wernick, M.D., a managed care consultant in Minneapolis. “I’d like to see employers drive the PBM to really manage the pharmacy process rather than be satisfied with discounts only,” he says.
The basic services that once distinguished one PBM from another–such as on-line claims adjudication and low-priced and quick mail-order service–are now offered by them all, notes Bertranb. She urges clients to consider both financial savings and quality-enhancement programs when selecting a vendor. “Employers need to look down the road at total health care costs. They need to look at vendors that are taking it a step beyond the basics with preventive programs, wellness programs, outcomes studies that are documented with hard data, preferably from the plan sponsor, and disease management.”
THE “SHOE BOX”
Consultants tend to be ahead of their clients when it comes to trying new programs. Indeed, many employers still aren’t sure whether to sign up with a PBM, let alone which PBM to use. They fear loss of what is known as the “shoe-box effect” of unfiled retail pharmacy claims when a carve-out program is launched. When employees file indemnity claims by mail, prescription receipts frequently end up in shoe boxes, waiting for employees to submit claims. Sometimes shoe boxes never are emptied. With a PBM, however, most claims are adjudicated at the pharmacy, and the employer ends up paying for claims it never had to pay for in the past.
Just how big is the shoe box? Campbell Soup Co., a food manufacturer in Camden, N.J., found out when it implemented a retail pharmacy carve-out in January 1994. Because the company was concerned about the shoe-box effect, says Diane Linke, benefits project coordinator, Campben’s drug-program is based on two claims–one electronic, one paper. At the point of sale, the pharmacy creates an electronic claim that is sent to the PBM, but the employee pays 100% of the cost. The employee then submits a paper claim, which the PBM matches with the electronic claim. Then the claim is released to the major medical carrier, which pays it.
After the first eight months of the program, Campbell calculated that employees were failing to file about $100,000 worth of claims on an annual basis. “Not a lot,” says Linke, when compared with the company’s annual cost of $11.4 million in pharmacy benefits. The extra cost of duplicating claims amounted to half of the shoe-box savings, so the company saved only $50,000. The duplicate claims program, cumbersome to administer, will end on Dec. 1.
GOING BEYOND DISCOUNTS
At the same time, Campbell’s pharmacy program is producing significant savings. “So far this year, we’ve had only a two-tenths of a percentage point increase in our active employee drug costs,” says Linke. Historically, the trend has been an 8% to 10% annual increase. The savings has come mostly from discounted prices. But she notes that discounts offer a big one-time savings and may not continue to be as generous. In the future, Linke says she is depending on the managed care aspects of her plan–such as calls to physicians to switch to lower-cost therapies and drug utilization review–to continue to keep costs in check.
Despite the concern with the shoe box, a growing number of companies are carving out their pharmacy plans. A research report published by the New York consulting firm of Sanford C. Bernstein & Co. notes that the number of covered lives in employer-funded PBM services has grown from 85 million in 1992 and 100 million in 1993 to an estimated 115 million this year. Major corporations that have launched or are about to launch plans include Chemical Bank, Ball Corp., GTE Corp., Chrysler Motor Co., Ford Motor Co., Banker’s Trust, and Delta Air Lines.
PERFORMANCE GUARANTEES
The sheer volume of new drug plans being implemented has created one strong employer demand: service. Several employers and consultants have noted that service has eroded as PBMs scramble to handle all their new business. “At least with my clients, there has been a slippage in service because of the rapid growth,” says Wernick.
Andrew Loyst, manager of U.S. benefits planning and development for Joseph E. Seagram & Sons Inc. of New York, tried to avoid service problems by including performance guarantees when the company signed a contract with Medco to provide the pharmacy benefit to 1,500 active non-union workers. The benefit cards had to be out by Jan. 1; otherwise Mexico was required to pay an undisclosed amount for each full week the cards were missing. There were also deadlines and penalties for late delivery of brochures and other materials to the covered population. Loyst wouldn’t cite figures, but says there are penalties for poor customer service and low scores on customer satisfaction surveys. “We have a penalty for each second beyond 20 seconds that an employee has to wait until his phone call is picked up,” Loyst says. “When you switch vendors at the start of the year, they have a lot of other contracts going on at the same time. They are very busy,” he says. “We wanted to get our two cents in that we didn’t want to be held up by other people’s contracts.”
Loyst says having these penalties in writing did the trick. “We still had problems. We had to enforce our penalties. But it heightened their awareness, and most people had their cards by the end of the first week of January. Without the penalties, and the awareness of the penalties, it might have gone on longer.”
Performance guarantees are required of all health benefit vendors at United Technology Corp. (UTC) a diversified manufacturer of high technology products in Hartford, Conn. “A vendor’s service is an extension of UTC. If something goes wrong, employees will see it as a reflection of UTC, not the vendor,” says Debbie Rourke, benefits associate. UTC’s PBM, ValueRx, in Bloomfield Hills, Mich., has pledged to provide timely mail-order dispensing and 24-hour-a-day customer service, among other things. Roughly 42,000 active and retired employees are eligible for the drug plan.
One area that employers should focus on is negotiating better PBM discounts. It’s a buyer’s market and PBMs are competing fiercely to sign up as many covered lives as possible. The mergers and alliances between pharmaceutical manufacturers and PBMs have shifted the vendors’ basic business-strategy. “This is not a profit business anymore. This is a volume business,” says Bertranb. Through acquisitions and strategic alliances, the drug companies are financing the growth of PBMs.
Campbell initially received proposals that offered drugs at average wholesale price (AWP) minus 10% at retail, says Linke. But when Campbell chose finalists, the discount increased to 12%. It is not uncommon, says Jim Norton, a principal at The Wyatt Co., in Toronto, for large employers to be offered discounts for retail brands in the 12% to 15% range.
Administrative fees are tumbling, too. “Because their services are commodities, because they are so streamlined now, administrative costs are coming down,” says Bertranb. “If a proposal comes in around $1 a claim, it is outdated. The competitive rates are running somewhere between 50 cents and 80 cents a claim.”
Rebates, too, can be structured to favor the plan sponsor. Many knowledgeable benefits people believe that rebates will disappear once the consolidation between the drug makers and PBMs is completed, and once the vendors feel they’ve bought all the market share they can. But today, rebates can return significant dollars to employers. “While rebates are still around, why not take advantage of pennies from heaven?” Bertranb asks.
Bertranb sees a trend among PBMs to offer to guarantee a set rebate on each prescription, say $1. That can amount to large savings if your population base is large. But the average rebate per claim is really $1.25 or $1.50, according to Bertranb, so the PBM is still keeping 20% to 50% of the rebate. “Clients should want to see the whole pool of debate money and take a negotiated rate out of that, or ask for a higher guarantee,” she says.
SEARCHING FOR QUALITY
In the future, pharmacy benefits may be a way to improve quality and reduce overall medical costs, some corporate benefit managers believe. Today, drug utilization review, both concurrent and retrospective, is the one must–have managed care aspect when implementing a pharmacy program. “We weren’t concerned only with cost savings. Our concern is the cost effectiveness of dollars spent and quality of care,” explains Neil Austin, director, health and welfare plans, Pacific Telesis Group, in San Francisco. The telecommunications company carved out drug benefits in August for 23,000 retirees who remain in indemnity plans. “With this population, whose average age is 71, we’re trying to prevent hospitalization” from drug-related causes, he says.
Older populations are prone to suffer from more prescription drug complications than other population groups for two reasons. First, they tend to take more drugs, including over-the-counter medications, and thus are more likely to experience adverse interactions. Second, drugs that work without side effects in younger individuals may induce serious side effects in older ones.
With the special needs of his retirees in mind, Austin wanted a drug program that could gather and analyze medical information. The vendor he chose, the Prescription Services Division of Caremark International, Northbrook, Ill., will examine drug utilization patterns. It will check the duration of the prescription and the dose, and will identify patients who have been prescribed an extraordinarily high number of drugs.
Once the plan has been in effect for six months or so, Austin intends to send his medical claims data back to Caremark for further analysis and case management.
Caremark is administering both the retail network and mail-order dispensing. Pacific Telesis retirees pay 10% of a generic drug’s price or 20% of a branded drug’s price when purchased from a network pharmacy. Out-of-network purchases require a 20% generic copayment and a 30% brand copayment. Austin declined to disclose the cost of his pharmacy benefit.
Even for younger employee populations, drug utilization review is an important managed care tool. “Retrospective utilization review can identify fraud and abuse, overmedication, and excessive dosage,” says Linke of Campbell Soup, which has about 23,000 active employees who receive benefits in the U.S. and an additional 10,000 retirees. “We’re providing a safety service for our employees.” Her program features concurrent UR, too, complete with mail-order drug history and claims filed with other pharmacies. Caremark handles the mail-order and retail business for the active employees; Campbell kept the retiree population with Mexico Containment Services of Montvale, N.J., which had been providing mail-order service to retirees since 1987 and now handles retail claims for that population, too. The company did not want to disrupt its retiree benefits, Linke says, but wanted the retail and mail-order claims linked together.
TRACKING PATIENTS’ DRUG USE
“One of the good things in having one PBM fill mail-order and retail prescriptions is that all the data is integrated,” she says. “They know what drugs employees have received no matter what pharmacy they’ve used. There are on-line utilization review and edits that alert the pharmacist right then to bad interactions or duplicate therapies.” DUR also saves money. Campbell doesn’t have hard data yet, says Linke, but typically DUR can reduce the cost of drugs by 7% to 10%, says Norton, the consultant. “One vendor has guaranteed one of my clients an overall reduction of 9% of drug costs from the DUR program,” he says.
Campbell has asked for guaranteed cost reductions from one PBM program in which the vendors call physicians to get them to change their prescriptions. Since 1992, Campbell has asked Mexico to call physicians to suggest switching to generic drugs. With the introduction of an open formulary in January 1994, Mexico–and now Caremark–calls to encourage doctors to switch to preferred formulary brands. While declining to be specific, Linke says the “savings are significant.” Caremark’s contract promises a reduction of several percentage points in drug costs through the program.