As benefits brokers and benefits managers look for new and innovative ways to bring value to their clients and employees, they cannot ignore the $139 billion prescription industry.
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 prescription benefit imbedded in the program. Self-funded employers can be at great risk with these types of plans due to overutilization, partly caused by drug companies. The prescription manufacturers all push for usage of their products and Americans have responded by requesting more and more prescriptions from their doctors.
Pharmacy benefit management companies are truly the middlemen in the industry. As the middleman, they work 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 of prescription 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, including margins on drugs themselves, administration fees and rebates. Employers and sponsors of prescription 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 prescription industry pricing model is no longer under the covers and increasing pressure has been put on the PBMs to begin to change their traditional model.
But the PBM is not the bad guy, nor is 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.
Aggressive, negotiated prescription pricing can bring real cost savings. In today’s market an 8 percent to 12 percent savings on an employer’s prescription 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 prescription plan management, creates an environment for employers to reduce their prescription risk and costs for many years.