To Regain Control of Drug Costs, Health Plans Must Understand the Road They've Traveled

Gregory S. Kaupp, JD, MPA, MLT, and Scott B. Lynch, JD

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In This Article

PBMs Today

The PBM industry currently employs some aggressive strategies to gain revenues from undisclosed sources to compensate for selling benefit administration services at lower costs. Many PBMs have turned to other revenue sources, such as selling claims data to drug manufacturers and repricing their retail networks, known as spread pricing (fees gained through continual negotiation of lower rates with the pharmacy network that are not passed on to the health plan or employer).

It is important to note that pharmacy benefit management has become the only area in health care benefits where a provider (retail or mail-order) is allowed to police, manage, and even pay its own claims. There are no significant fire walls between the provider and the payer in most PBMs that own retail or mail-order pharmacies. Large PBMs have evolved to a point where their primary source of revenue is no longer the administration of benefits for health plans or employers; it is the sale of drugs through mail-order and retail channels and the sale/control of information to drug manufacturers, with the financial return to the PBM either being through rebates or the sale of claims data.

Health plans today must ask if the claims, cost management, and quality-of-care objectives they had when initially contracting these pharmacy benefit services to an outside vendor are being unduly compromised. The evolution of the PBM business raises some interesting challenges for health plans desiring a balance between cost management and quality of care.

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