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        3 min read

        PBMs: What Employers Need to Know

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        Prescription drugs have become an increasing source of a company’s annual health insurance rate increases. Without tackling prescription spend, it’s tough for a company to take control of their costs. Most companies just leave their medication spending up to their PBM, but what do they do exactly?

        According to a report from, spending on prescription drugs grew 9% faster than any other category of healthcare spending. They saw an increase in spending for generics, increased use of pricey new medicines, and price increases for existing drugs.

        What is a PBM exactly?

        A pharmacy benefit manager, or PBM, is a third-party administrator (TPA) for a prescription drug program. Fully-insured and self-insured employer plans both have PBMs. Employers are mostly familiar with PBMs for their responsibility to create and maintain the plan’s formulary, the list of prescription drugs available to employees, usually categorized by pricing tiers.

        PBMs also establish relationships with different pharmacies, both online and retail. They negotiate rebates and discounts directly with drug manufacturers in addition to processing prescription drug claims on behalf of the employer and employees. PBMs essentially work in the background to handle everything drug-related within an insurance plan.

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        With fully-insured plans, the carrier will usually act as the PBM or may contract that role to a third party. Self-insured employers, on the other hand, have the option to either pick their own PBM or stick with a plan default. In either case, they will get more flexibility when working with the PBM on formulary design. This greater flexibility can help lower a company’s prescription costs, which is usually 20% or more of a company’s overall health benefit spend.

        “Everyone understands that healthcare is complex but prescription spending is next-level stuff,” said Mr. Chad DiBonaventura from Baystate Benefits. “Companies assume that if they’re with a large carrier, they are getting the best possible deal, but it’s not true. With the huge amount of specialty drugs coming out, companies need to understand their relationship with their PBM and how it fits into their overall spending.”

        What’s a Pharmacy “Carve-Out”?

        A carve-out is when an employer chooses a PBM that’s not contracted with the health plan administering their medical claims. You can do a carve-out with either a fully- or self-insured plan. With carve-outs, a company might pay two separate fees to both providers but with the expectation of saving money and offering more benefits.

        In a carve-out environment companies usually have more control over the terms of the deal. They will also get auditing rights, better reporting, and clinical and risk management for the program. The plan sponsor will also have a direct relationship with the PBM which allows for more communication that can help reduce costs and improve clinical outcomes.

        Benefits your company may see with a carve-out

        1. Lower Overall Pharmacy Costs

        Once you remove the prescription drug benefits from a plan, you greatly expand the options of PBMs to work with. Your administration costs become more clear, and you can negotiate prices and compare RFPs from different vendors for terms, discounts and rebates.

        2. Transparency

        With carved-in plans, companies are usually given very little transparency into the cost of the prescription drug spend. It’s difficult to improve something when it all happens behind the curtain. With better transparency comes a greater ability to change behavior.

        3. Better Data Management & Analytics

        When you select your own PBM, you get access to all claims elements. Employers can then use that data to create accurate forecasting models and strategic plans around their employees’ prescription usage. You’ll usually be able to access your data via an API data feed, FTP or integrate with a health data analytics platform like Springbuk.

        4. Carved-out Specialty Drugs

        Yes, your carve-out can have an additional carve-out for specialty drugs (it almost sounds like a ship in a bottle, right?) Specialty solutions are not one size fits all; you can have solutions for each patient, each disease and get granular. Finding the right solution can be tough, but if your company works with a progressive and creative broker, your options are endless. With the pipeline of specialty drugs changing on a monthly basis, it’s important to do proper modeling to budget for future expenses and select appropriate stop-loss protection.

        In closing

        Since pharmacy costs are such a big part of a company’s health plan spend, you need to understand what your present PBM does for you. A carve-out can lower a company’s cost by up to 20%. If you’re offering your employees a mobile guidance app like HealthJoy, it makes changing to a new PBM seamless.

        At HealthJoy, we can integrate with any PBM and offer over nine additional Rx Savings strategies for employees using HealthJoy.

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