It is no secret—there is a complex value chain in healthcare. It’s also fair to say sometimes a patient’s needs get lost in the shuffle. Pharmacy benefits managers (PBMs) are an integral go-between among pharmacies, hospitals, drug manufacturers, and providers.
PBMs face the daily task of negotiating terms and prices, selecting which drugs are covered by plans, and striving to pass savings on to the patient. Of all the PBM challenges, one common denominator is the need for greater transparency.
Below, we’ll examine the PBM’s role in healthcare as it has evolved and how collaborative transparency and using the best tools can help eliminate many of the industry’s greatest pitfalls.
A Brief History of the Pharmacy Benefits Managers’ Place in Healthcare
The role pharmacy benefits managers (PBMs) have played in healthcare has gone through a series of progressions. By looking at how PBMs have substantially changed the industry, we also see the evolution of various PBM challenges.
PBMs first entered the picture in the 1960s to answer the healthcare industry’s need for streamlined claims administration. Insurance companies sought help with processing high-volume, small-dollar claims in an economically viable way.
PBMs filled this much-needed intermediary role, resolving the administrative bottleneck of processing prescription approvals. This reduced operational costs, passing the savings on to patients.
In the 1970s, PBMs introduced the plastic drug benefit identification card. It’s hard to grasp the revolutionary impact this had, virtually eliminating patients having to file paper claims for themselves.
These successful PBM practices led to innovations, as PBMs introduced pharmacy networks and mail service benefits at a discount, further reducing administrative burdens and lowering costs.
In 1987, PBMs introduced the first real-time electronic online drug claims processing, including two-way communication with pharmacies.
Decades of innovation and healthcare benefits led to continued expansion. PBMs grew in power, now managing most of the prescription market. There were major consolidations and mergers with organizations like Rite-Aid acquiring PCS, Express Scripts purchasing Value RX, and others.
PBMs were now managing 1.8 billion prescriptions per year, the top four PBMs covering more than two-thirds of them.
Critics became concerned whether multiple revenue streams were introducing a conflict of interest: negotiating drug prices, selecting drugs for approval in formularies, and receiving rebates in addition to a fee-for-service.
Regulators and federal agencies have increased efforts to protect patients from the rising cost of prescribed medications.
Because there is a delicate balance between drug developers who create patented medications, drug manufacturers looking to reach the largest potential market, and healthcare providers seeking as many therapeutic options for patients as can be afforded, the PBM is often at the center of legislative crosshairs.
Common Industry Challenges
There are numerous challenges throughout the healthcare industry. Many challenges exist where there are cracks in the system, and have no easy solution or certain culprit. The following are some of the more prevalent trials faced by PBMs:
The challenges surrounding transparency have many levels.
Transparency in Negotiations
To pass the greatest savings forward to healthcare plans—thus to patients—PBMs have to leverage confidentiality in their negotiations with drug manufacturers and retail pharmacies. There is a fine line between the necessity for contractual non-disclosures and public perceptions.
Transparency in Pricing
PBMs strike a balance between influencing which drugs are included in formularies and the terms they negotiate with drug manufacturers and retail pharmacies. The resulting prices might include rebates that patients can pass on or a price spread veiled in contractual silence.
Transparency in Fees
PBMs are paid a service-for-fee, but they also earn a percentage of rebates before passing what remains to employers and providers. They often also profit from a price spread between the negotiated price of drugs and the final cost passed to healthcare plans for approval.
Since many of these arrangements are concealed—often at the request of drug manufacturers or retail pharmacies—it adds to public scrutiny and speculation.
Impact on Independent Pharmacies
Since consolidating the largest PBM groups in the 1990s and forward, it has been difficult for community pharmacies and small startups to compete with national chains. Their profit margin is simply too thin for profitability.
While everyone, including well-meaning PBMs, agrees greater transparency in pricing and operations would lead to improvements industry-wide, regulators and lawmakers are focused squarely on PBMs. Issues include the need for complete transparency on their spread, rebates, and other earnings, which could inadvertently weaken the PBM’s negotiating power with drug manufacturers.
There’s also a push to eliminate the price spread entirely and for 100% of rebates to be passed on to health plans. Many worry that doing so without oversight to ensure patients see lower costs could shift consolidated powers to other hands.
Building Better Working Relationships
Suppose drug manufacturers, PBMs, and healthcare providers join efforts to improve transparency as a united front. In that case, they can also help reduce the uncertainty that may follow regulatory disruption and reorganization of the industry.
PBMs can work with drug manufacturers, patent owners, pharmacies, and healthcare providers to provide an itemized breakdown of fees, spread pricing, rebate retention, and direct/indirect remuneration (DIR) fees. This will require a new approach to negotiating terms, but transparency ultimately helps organizations coordinate with PBMs to maximize cost savings.
Utilization of Better Tools
Better data comes from having a more sophisticated view of industry-wide metrics. With that data, you can uncover new efficiencies.
The following are three significant benefits of using advanced software to increase efficiency across the pharmaceutical sector:
1. Reduce Operational Costs
With advanced analytics, automation, and machine learning (ML), software platforms can help groups optimize their operations to reduce costs.
2. Improve Patient Adherence to Therapy
Using digital monitoring and managing personalized healthcare data can ensure patients follow prescribed therapies. Better adherence leads to better health outcomes, reducing the industry’s cost burden.
3. Foster Collaboration
When stakeholders share the interest and responsibility in reducing costs, the industry can organize efforts to bring greater patient savings.
Xevant Is Driving Better Decisions through Technology
Xevant’s software platform provides the healthcare industry with the following tools:
- Real-time data analysis
- Automated reporting
- Prescription cost visualization and utilization
- Data forecasting for reducing costs and enhancing clinical oversight
- Facilitation of Retrospective Drug Utilization Reviews (RDURs) to identify prescribing issues and optimize rebates
- Automated pharmacy claim repricing and savings analysis
- Multi-source data consolidation
Discover how our platform drives innovation to foster collaboration and enhance patient outcomes. Try Xevant’s platform by taking advantage of our free trial today!