Prescription costs are estimated to be between 20 percent to 30 percent of the total health plan cost in America and are rising by 10 percent to 20 percent annually. When employers sponsor health care plans, most will have a Rx benefit imbedded in the program. Self-funded employers can be at great risk with these types of plans due to over-utilization partly caused by drug companies. The Rx manufacturers all push for usage of their products and Americans have responded by requesting more and more prescriptions from their doctors.
What is a broker to do with these conflicting forces? The pharmacy benefit management companies are truly the middleman in the industry. As the middleman, their motivation is to satisfy both the manufacturers and distributors while also appeasing their end users the employer and their employees.
To truly understand this industry one must understand all aspects to Rx pricing. The scope of this article does not allow for a full discussion on this topic but there are several high level issues that can open the door to understanding this industry.
PBMs generate revenue in several different ways such as margins on the drugs themselves, administration fees and rebates. Employers and sponsors of Rx programs have recently begun to understand these revenue generating issues and have started to question their PBMs more closely. The rise in health care cost to employers and sponsors has motivated them to explore all avenues for cost savings. The Rx industry pricing model is no longer under the covers and increasing pressure has been put on the PBMs to begin to “peel the onion” off of their traditional model. Every contract an employer has with a PBM is not the same and within each contract there are imbedded revenue generating advantages for the PBM.
But the PBM is not the bad guy, nor the drug manufacturer. Each has their own distinct objectives but often both the employers and sponsors are shouldering the burden of their objectives. Ultimately employees also share in this burden.
So where is the broker in this equation? In a great position. He’s able to bring his clients negotiated aggressive Rx pricing through several avenues. Many consulting firms are dedicated to this very issue and can provide the broker with the tools to bring real cost savings to their clients. In today’s market an 8 percent to 12 percent savings on an employer’s Rx plan could actually save some jobs.
The buzz word within this space is “transparency pricing,” which if structured properly, can bring significant savings to employers. This combined with true Rx Plan management creates an environment for employers to reduce their Rx risk and costs for many years.
George Conmy is one of the principals of Conmy Consulting dedicated to providing brokers with access to innovative Rx Plans and other emerging employee benefit products. He can be reached at www.conmyconsulting.com or 607-343-4507