For most employers, prescription spend.. drug costs… are steadily increasing. In fact, pharmacy costs account for almost 25% of most employers’ health care budget every year.
The Pharmacy Benefit Manager (PBM), is a company that manages your prescriptions, including allowable medications on your formulary, what you pay for them, what the manufacturer paid for them, and where the rebates go.
There are two direct middlemen: drug wholesalers and PBMs. And two indirect middlemen: PBM consultants and insurance companies.
A drug wholesaler is a wholesaler who gets medications from the manufacturer and wholesales it out to PBMs or perhaps to an employer directly.
Insurance companies or employers (typically through a TPA) will hire PBMs to manage the prescription part of the medical plan. Pharmacies are the recipient; they're the ones being paid for prescriptions. And, pharmacy benefit rebate aggregators “manage” all the rebates.
Notice how I haven’t yet mentioned the drug manufacturer? A drug manufacturer will generally sell to a wholesale or channel company and the wholesale will work with the aggregator or the PBM, and they're all deciding what the pharmacy gets paid for the prescription. And then, you might add a PBM consultant who will help you manage your costs, negotiate rebates, and ensure you're receiving all your rebates. You only need a PBM consultant if you do not have a direct fiduciary contract with the PBM.
All this is really doing is inflating the price of the drug. Not to mention, the insurance companies are making money by collecting the rebates. If you are a self-funded employer, review your ASO contract to determine what kind of rebate credit you're getting. It could be high enough that you are not even paying an admin fee because they're keeping all your drug rebates. If an insurance company is a for-profit entity and they're giving you a credit to offset your administrative fee so large that your administrative fee is now zero, do you think you're getting 100% of those rebates back?
If you want to control your pharmacy costs, do this:
Have a direct relationship with your PBM – YOU, as the employer, sign the contract and make sure you to stipulate that all third party revenue us returned to you.