While the Big Three pharmacy benefit managers continue to be mired in controversy, coalition PBMs may appear to be a viable avenue for like-minded employers that
Without the right contractual terms in place, they're nothing more than another Rx revenue engine that adds cost at the expense of employer clients, argues Christopher Szem, a principal with IAR Benecept Consultants.
The danger of such arrangements is that they can use their control over formularies and prior authorization processes to steer
"These coalitions have very parochial contracts where they must do certain things and drive it through the PBM rather than looking at what is the best alternative," he cautions. Those strategies might include securing international sourcing, direct distribution from the manufacturer or a deal with Mark Cuban's Cost Plus Drug Company.
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There are other constraints to consider as well. Many contracts, for example, require more than two generics on the market for a drug to be considered a name brand, according to Szem. What that does is obscure true costs by helping the discount of the name-brand drug silo artificially.
In addition, there are serious liability concerns to address. Any consultant working with a coalition PBM must disclose all of their revenue under the Consolidated Appropriation Act's
PBM coalitions rarely undergo independent audits of their pricing and rebate practices, explains Gary Becker, CEO of ScriptSourcing. "Until there is full auditability and disclosure, claims of savings should be viewed with caution," he says. "What looks like a discount may simply be a shell game."
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One of the schemes Szem sees playing out involves inflating the price of biosimilars to make the rebate and name brand look better, which essentially reduces the spread between the name-brand specialty and biosimilar.
Avoiding excess costs
There are two elements essential to securing a PBM contract void of cost excess, according to Scott Haas, a partner and senior vice president for USI Insurance Services, who agrees with Szem's characterization of coalition PBMs. They include defining every pricing element in objective terms and ensuring true competition with no inkling of a likely winning bid based on fiscal assessment that uses objective modeling.
"Great deals are touted as providing superior discounts or rebates when the observed unit cost for generics is very high across the board and there remains substantial cost excess — even when generics are AWP-90%," Haas says. "A large PBM intermediary, consortium or coalition does not ensure that good pricing exists. In fact, pricing is typically found to be very poor because there is not the essential element of competition in securing contracts."
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A PBM cannot assume it has an inside track to earn a piece of business as with coalitions and consortiums, he explains, adding that rigid adherence to procurement discipline and competition (not size) achieves good pricing.
"Rebates are a function of claim cost and must be utilized to offset gross claim expenses," Haas says. "Advisers who allow their clients to accept rebate credits as an offset to administrative fees should be fired for malpractice. Other PBM revenue sources also are derived primarily from claim and transaction costs or margins and should not be allowed to offset administrative costs."
Szem's advice to producers is that they have a third party specializing in the pharma area review the coalition PBM contract before an employer client signs on the dotted line. "If you don't have that skill, you want to have someone on your bench who can actually benchmark those terms against what's out there in the marketplace," he suggests.
Adds Becker: "The real movement is toward PBMs that eliminate opacity and commit to the lowest net cost — period."
