Over the last year, state andfederal policymakers have been vocal regarding the need to curbrising prescription costs for Americans, as well as the importanceof increased transparency in the health care industry. Throughoutthis dialogue, pharmacy benefit managers (PBMs) have been highlycriticized for their masked revenue streams, which impact costs foremployers, patients, and the nation.

The current administration and the Department of Health andHuman Services, have proposed changes to one such source of revenue, thecurrent drug rebate system from which many PBMs derive some oftheir profits.

However, the root cause of rising costs is not confined torebates. Today, the United States incurs $750 billion in health care waste, whilemedical errors, including inappropriate and dangerous care, are thethird leading cause of death. A PBM industry focused on profitsrather than patients compounds these problems. They must change andstart focusing on better patient care.

Benefits professionals can take action on their own byfamiliarizing themselves with all PBM solutions available, and howclinical programs impact the bottom line.

The problem with the traditional PBMmodel

If rebates are not the only source of rising costs, why do theyreceive so much attention? In part, it's because they are anattractive target that has a direct impact on costs. Rebates arepaid to pharmacy benefit managers by drug makers in return forfavorable placement of their products on the PBM's formulary.Often, rebates cover as much as 40 percent of the drug's listprice. Some believe that this creates an incentive for drugmanufacturers to raise list prices, which can hurt patients at thepharmacy counter in the form of higher out-of-pocket costs.

Although they are meant to make drugs more affordable, rebatesdo not typically reach the patient. Many PBMs retain some (or all)rebate dollars, which can end up costing patients and theiremployers (plan sponsors) money. Rebates can even incentivize PBMsto promote brand name drugs with a generous rebate over less costlygeneric alternatives.

Related: Despite regulatory intervention, PBMs are stillgaming the system

Other hidden revenue streams help to illustrate additionalissues in the PBM industry. Many PBMs engage in “spread pricing,”wherein they bill plan sponsors for a drug at one price, then pay alower price to the dispensing pharmacy and retain the difference.The plan sponsor and benefits pro working on their behalf may neversee the actual cost of the drug, making it difficult to determineif they are overpaying. In fact, spread pricing and resultantoverpayment was a driving factor behind sweeping changes to how thestate of Ohio intends to handle pharmacy benefits for its nearly 2 million Medicaid enrollees.

To say transparency is lacking in the PBM industry is anunderstatement. Rebates and spread pricing only scratch the surfaceof the pricing games that are played. Many pharmacy benefitmanagers' interests are not aligned with those of patients and plansponsors. Hidden revenue streams often lower incentives that ensureappropriate drug utilization and reduce waste, as PBMs typicallyprofit from each prescription filled. While this can providestellar returns for shareholders in the form of higher PBM stockprice and dividends, patients and plan sponsors – the very peoplePBMs are meant to serve by lowering costs – are leftbehind.

Pay for performance

Not until PBMs are held accountable for their performance willpatients and plan sponsors truly see a reduction in waste andinappropriate care that lead to savings. Pay-for-performanceprograms promise a way forward to better address client and memberinterests.

The success of a PBM should not be based on its ability todeliver large rebates. Instead, the true measure of an effectivePBM is its ability to serve patients and plan sponsors and loweroverall health care costs. Under a pay-for-performance program, thePBM guarantees the total plan pay amount (the plan sponsor's bottomline for amount paid on covered prescriptions). The program alsoputs the PBM on the hook if it fails to perform and meet thoseguarantees.

In order to ensure PBM performance year after year, the PBM mustpractice true transparency, align its interests with plansponsors, and put patients first. This requires a strong clinicalfocus that reduces inappropriate drug utilization while stillensuring patients have access to the medications they need.

PBMs should only be rewarded when they fulfill theircommitments, not each time they process a claim. Withpay-for-performance, a PBM's financial success is directly tied toits ability to improve health outcomes and deliver plan savingswhile providing the highest quality service. This is the realchange clients are seeking in an industry rightly seen as overlycomplex, confusing, and opaque.

More robust clinical programs

At its heart, pay-for-performance is about looking beyond therebates and discounts offered by the PBM. Effective solutions torising drug costs rely on comprehensive, robust clinical programs.These can dramatically reduce fraud, waste, and abuse (FWA) andimprove health outcomes, which ultimately leads to increasedsavings for patients and plan sponsors, as well as improvedemployee productivity for clients. Following are a few examples ofhow strong clinical programs can help reduce overall health carespending:

• Point-of-sale review: This tool is intended topromote safe drug utilization. All PBMs use some form of review atthe point of sale, but not all of these programs are equallyeffective. Strong point-of-sale reviews increase patient safety bypreventing inappropriate drug utilization instead ofidentifying it after the fact. This helps reduce on harmfulcomplications and FWA.
• Pharmacogenetics: A study of how geneticfactors influence the way the body processes medication,pharmacogenetics can prevent the use of contraindicated orinappropriate medication. When PBM claim systems integratepharmacogenetic test results into comprehensive health profiles formembers, this information can be applied at the point of sale. Itallows pharmacists to work with prescribers to find the mosteffective medication for a patient while minimizing side effects.This reduces costs for patients and plan sponsors by achieving morefavorable health outcomes.
• Coordination of care: Pharmacists at both thePBM and the pharmacy need access to tools that allow effectivecommunication with all of a patient's prescribers. This ensuresthat patients receive the care that's best for them based onclinical considerations such as health and medication history.Pharmacists are one of the most underutilized resources in healthcare, and PBMs should help, not hinder them in their work. Thisultimately lowers drug trend year after year by helping patientsget and stay healthy, reducing dependence on medications.

Look beyond the spreadsheet

Spreadsheets often serve as the basis for PBM comparisons.However, there is more to consider than just these superficialfinancial figures. Standard spreadsheets generated by the proposalprocess present a range of rebates and discounts derived fromdiffering definitions of transparency, pricing games, and hiddenprofit centers. They fail to account for the impact that improvedmember health outcomes and reduction of inappropriate or wastefuldrug utilization have on the plan sponsor's (and the patient's)bottom line.

The pay-for-performance program we've described offers a muchclearer comparison.

The PBM guarantees the total plan cost. It accounts for allmoving parts that affect patient care and prescription drug spending. After all, whatdifference do individual drug discounts and rebates make if thenumber of claims continues to climb each year due to wasteful,fraudulent, and inappropriate drug utilization?

Knowing all the hidden and published PBM profit centers, as wellas emerging practices in pharmacy benefit management and the bestmethod for PBM comparison, can help benefits professionals makesmarter decisions that will help their clients and their members inthe long run.

Michael A. Perry is the President of BeneCardPBF. Michael and his team have engineered a purelytransparent PBM model along with a pure pass-through offering and apay-for-performance PBM product. BeneCard PBF's “member first”approach centers on clinical programs that drive costs down whilehelping improve his member health outcomes. BeneCard hasdemonstrated consistently superior service with an average overallsatisfaction rating of 9.52 out of 10 since 2014 in PBMI's PBMCustomer Satisfaction Survey, reflecting its passion for creating abetter PBM experience.