Hospitals are in a unique position when it comes to managing their pharmacy benefits because they often possess in-house pharmacy distribution capabilities and access to staff with clinical pharmacy expertise. If a hospital can fully leverage these types of in-house capabilities, it can have a dramatic effect on the hospital's overall employee pharmacy benefit budget. How to best leverage these capabilities should be considered when a hospital selects its pharmacy benefit management partner on behalf of its employees and their dependents.
Tips for hospitals working with a PBM
1. Optimize outpatient pharmacies. Hospitals often have their own outpatient pharmacies that are usually under-utilized by their employees. Some PBMs offer flexible program management that enables a hospital to drive employee traffic to its outpatient pharmacies, including:
• Treating the outpatient pharmacies as a cost center or a profit center, depending on the hospital's preference or financial objectives.
• Offering a plan design that provides lower copays for employees when they frequent outpatient pharmacies versus other network pharmacies.
• Utilizing a hospital's outpatient pharmacies to fill maintenance and specialty prescriptions.
• Becoming a contracted pharmacy to distribute 340B or GPO prescriptions for qualified entities.
• Taking advantage of additional savings that are available through a 340B or GPO "own use" program for its employees by accessing these deeper discounts.
When a hospital uses its own pharmacies for retail, maintenance and specialty prescriptions for employees, it can allow for enhanced savings for the hospital's benefit program. Promoting the use of hospital pharmacies through plan design encourages employees to use these pharmacies and it can contribute toward additional member cost savings. Further, participants can visit pharmacies close to where they work, making filling and refilling prescriptions more convenient.
2. Hospital employee plan design and formulary innovation. Innovation in plan design is also available to hospital clients. Options that support monetary savings for the hospital or its employees include:
• Percentage copays, or coinsurance. Using percentage copays instead of flat dollar copays hedges against the inflationary cost increases year over year. They also help educate members about the true cost of their medications.
• $1 generic copay medication list for employees. Developing a select list of generic medications that are available for $1 a month and $3 for three months is an excellent cost-savings approach. These copays would be available only at the hospital's pharmacies for its employees and their dependents. Hospital employees are thus encouraged to utilize hospital-owned pharmacies and to use generic drugs.
3. Managed formulary for employees. Another option for hospitals is to work with their PBM to develop a managed formulary for their employees. All hospitals already have a managed formulary in place for hospital inpatients. If the hospital pharmacy fills scripts for employees (in addition to inpatients), it increases the volume of use for that formulary, which helps when purchasing from a wholesaler.
Possible pitfalls
As is evident from the above tips, there are unique opportunities for hospitals working with PBMs. However, there are also certain pitfalls of which hospitals should be aware.
1. Lack of access to information. Many organizations have difficulty verifying what they’re receiving from their relationship with their PBM. Often it's very difficult to know whether the PBM is performing the way it indicated in an RFP response or contract. Why? Many PBMs do not allow clients to independently verify what's happening with their prescription drug claims. The PBM could easily be retaining client dollars through spread, data sales or other undisclosed arrangements with pharmaceutical manufacturers.
2. Zero administrative fee. Another huge red flag is evident when a PBM charges no administrative fee to provide services. When was the last time a company provided services entirely for free? How long would such a company survive? While these questions also apply to PBMs, the enticement of zero administrative fees through the RFP process tempts organizations purchasing PBM services. The zero administrative fee ploy simply means the PBM is making the necessary margin through the other means listed above, and, at a much higher rate than those PBMs charging only an administrative fee.
3. Lack of program flexibility. A PBM should be an advocate for its clients. But in many cases, PBMs profit off certain aspects of their client's programs. For example, a PBM might not desire to promote hospital outpatient pharmacies because it may prefer to promote its own network pharmacies, where it can obtain spread on the claims dispensed. When a PBM won't allow such flexibility, it should be a red flag to a hospital seeking a PBM that works solely as an advocate for its clients.
Choosing the right PBM
A hospital client should seek a PBM that will allow it to employ the tips and tricks and avoid the pitfalls discussed herein. The following describes the various types of PBMs, and how each fit into the topics addressed in this article.
• Traditional spread model PBM — Offers a very low or no administrative fee in exchange for retaining pricing spreads on drugs and rebates from manufacturers. As discussed above, the administrative fee appears attractive but comes at a cost to the hospital because that low administrative fee means the hospital must give up control over key decision points. Why? The traditional spread model PBM:
• Hybrid model PBM — Offers a low administrative fee, but often conceals some revenue streams and retains some spread. The hybrid model PBM is also motivated to reward formulary and/or rebate decisions contrary to its clients’ best interests. More control is afforded hospitals through this type of PBM, but alignment of goals is still lacking.
• Full pass-through model PBM — Offers a competitive administrative fee, retains zero hidden revenue streams and zero spread. The only income a true pass-through PBM earns is through its administrative fee. Full pass through PBMs instead allow the hospital the flexibility to save money through its own outpatient pharmacies.
Some of the best ways for hospitals to save money with their PBM include:
PBMs can offer hospital clients a variety of options and opportunities for savings. Hospitals should consider seeking the flexibility and transparency available through a pass-through model PBM. Forging a collaborative partnership with a pass-through PBM enables the hospital flexibility, while simultaneously leveraging the expertise of the PBM staff. A pass-through PBM can help a hospital target clinical and formulary strategies specific to its employee population and promote its outpatient pharmacies. These inventive solutions are available to any hospital ready to make the leap from a high cost PBM program to one that permits innovation, collaboration and flexibility.
Brent J. Eberle, R.Ph, Vice President of Clinical Pharmacy Services at Navitus Health Solutions, is responsible for providing leadership regarding clinical and operational pharmacy matters and related strategic and tactical business opportunities. He works with clinical staff and other departments to develop and maintain clinical intervention products to ensure the appropriate use of drugs.
Byron Mickle, Senior Vice President, Sales, Marketing & Analytics, has more than 20 years of experience in pharmacy benefit management and consulting. He is responsible for strategic planning and overall business growth across all markets, including public sector, private employer, managed Medicaid, Medicare, health plan and third-party administrator. In his executive capacity, Mr. Mickle has successfully positioned Navitus as a market leader in the full pass-through PBM business model that controls costs more efficiently, delivers more savings, improves outcomes, and increases member satisfaction.
Tips for hospitals working with a PBM
1. Optimize outpatient pharmacies. Hospitals often have their own outpatient pharmacies that are usually under-utilized by their employees. Some PBMs offer flexible program management that enables a hospital to drive employee traffic to its outpatient pharmacies, including:
• Treating the outpatient pharmacies as a cost center or a profit center, depending on the hospital's preference or financial objectives.
• Offering a plan design that provides lower copays for employees when they frequent outpatient pharmacies versus other network pharmacies.
• Utilizing a hospital's outpatient pharmacies to fill maintenance and specialty prescriptions.
• Becoming a contracted pharmacy to distribute 340B or GPO prescriptions for qualified entities.
• Taking advantage of additional savings that are available through a 340B or GPO "own use" program for its employees by accessing these deeper discounts.
When a hospital uses its own pharmacies for retail, maintenance and specialty prescriptions for employees, it can allow for enhanced savings for the hospital's benefit program. Promoting the use of hospital pharmacies through plan design encourages employees to use these pharmacies and it can contribute toward additional member cost savings. Further, participants can visit pharmacies close to where they work, making filling and refilling prescriptions more convenient.
2. Hospital employee plan design and formulary innovation. Innovation in plan design is also available to hospital clients. Options that support monetary savings for the hospital or its employees include:
• Percentage copays, or coinsurance. Using percentage copays instead of flat dollar copays hedges against the inflationary cost increases year over year. They also help educate members about the true cost of their medications.
• $1 generic copay medication list for employees. Developing a select list of generic medications that are available for $1 a month and $3 for three months is an excellent cost-savings approach. These copays would be available only at the hospital's pharmacies for its employees and their dependents. Hospital employees are thus encouraged to utilize hospital-owned pharmacies and to use generic drugs.
3. Managed formulary for employees. Another option for hospitals is to work with their PBM to develop a managed formulary for their employees. All hospitals already have a managed formulary in place for hospital inpatients. If the hospital pharmacy fills scripts for employees (in addition to inpatients), it increases the volume of use for that formulary, which helps when purchasing from a wholesaler.
Possible pitfalls
As is evident from the above tips, there are unique opportunities for hospitals working with PBMs. However, there are also certain pitfalls of which hospitals should be aware.
1. Lack of access to information. Many organizations have difficulty verifying what they’re receiving from their relationship with their PBM. Often it's very difficult to know whether the PBM is performing the way it indicated in an RFP response or contract. Why? Many PBMs do not allow clients to independently verify what's happening with their prescription drug claims. The PBM could easily be retaining client dollars through spread, data sales or other undisclosed arrangements with pharmaceutical manufacturers.
2. Zero administrative fee. Another huge red flag is evident when a PBM charges no administrative fee to provide services. When was the last time a company provided services entirely for free? How long would such a company survive? While these questions also apply to PBMs, the enticement of zero administrative fees through the RFP process tempts organizations purchasing PBM services. The zero administrative fee ploy simply means the PBM is making the necessary margin through the other means listed above, and, at a much higher rate than those PBMs charging only an administrative fee.
3. Lack of program flexibility. A PBM should be an advocate for its clients. But in many cases, PBMs profit off certain aspects of their client's programs. For example, a PBM might not desire to promote hospital outpatient pharmacies because it may prefer to promote its own network pharmacies, where it can obtain spread on the claims dispensed. When a PBM won't allow such flexibility, it should be a red flag to a hospital seeking a PBM that works solely as an advocate for its clients.
Choosing the right PBM
A hospital client should seek a PBM that will allow it to employ the tips and tricks and avoid the pitfalls discussed herein. The following describes the various types of PBMs, and how each fit into the topics addressed in this article.
• Traditional spread model PBM — Offers a very low or no administrative fee in exchange for retaining pricing spreads on drugs and rebates from manufacturers. As discussed above, the administrative fee appears attractive but comes at a cost to the hospital because that low administrative fee means the hospital must give up control over key decision points. Why? The traditional spread model PBM:
- Promotes its own pharmacies in order to impact its own profitability. The traditional spread PBM may maintain its own mail order, specialty and/or retail pharmacies — and therefore, has the incentive through higher profits to move as many claims as possible to its facilities. The traditional model PBM is therefore less likely to give a hospital the flexibility to utilize its own outpatient pharmacies which would enable it to pay the least amount possible.
- Strategically promotes certain formulary products in order to achieve favorable pharma revenue. It is not in the traditional PBM's best interest to allow clients formulary flexibility. Drugs are strategically placed on the formulary to maximize rebates and other undisclosed financial arrangements with pharma that directly cost clients more money.
• Hybrid model PBM — Offers a low administrative fee, but often conceals some revenue streams and retains some spread. The hybrid model PBM is also motivated to reward formulary and/or rebate decisions contrary to its clients’ best interests. More control is afforded hospitals through this type of PBM, but alignment of goals is still lacking.
• Full pass-through model PBM — Offers a competitive administrative fee, retains zero hidden revenue streams and zero spread. The only income a true pass-through PBM earns is through its administrative fee. Full pass through PBMs instead allow the hospital the flexibility to save money through its own outpatient pharmacies.
Some of the best ways for hospitals to save money with their PBM include:
- Employing a pass-through business model PBM
- Using a lowest-net-cost, managed formulary for hospital employees and dependents
- Utilizing hospital outpatient pharmacies as cost centers and encouraging their use for retail, maintenance and specialty distribution
- Utilizing innovative plan designs, such as $1 generic programs at the hospital’s outpatient pharmacies
- Conducting clinical programs that promote cost savings through aligned incentives between the PBM and hospital.
PBMs can offer hospital clients a variety of options and opportunities for savings. Hospitals should consider seeking the flexibility and transparency available through a pass-through model PBM. Forging a collaborative partnership with a pass-through PBM enables the hospital flexibility, while simultaneously leveraging the expertise of the PBM staff. A pass-through PBM can help a hospital target clinical and formulary strategies specific to its employee population and promote its outpatient pharmacies. These inventive solutions are available to any hospital ready to make the leap from a high cost PBM program to one that permits innovation, collaboration and flexibility.
Brent J. Eberle, R.Ph, Vice President of Clinical Pharmacy Services at Navitus Health Solutions, is responsible for providing leadership regarding clinical and operational pharmacy matters and related strategic and tactical business opportunities. He works with clinical staff and other departments to develop and maintain clinical intervention products to ensure the appropriate use of drugs.
Byron Mickle, Senior Vice President, Sales, Marketing & Analytics, has more than 20 years of experience in pharmacy benefit management and consulting. He is responsible for strategic planning and overall business growth across all markets, including public sector, private employer, managed Medicaid, Medicare, health plan and third-party administrator. In his executive capacity, Mr. Mickle has successfully positioned Navitus as a market leader in the full pass-through PBM business model that controls costs more efficiently, delivers more savings, improves outcomes, and increases member satisfaction.