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PBMs: Some Employers Look to Break the PBM Habit

wolverines!Earlier this week referring to the WSJ piece on PBMs (which one ex-reporter suggested to me was investigative journalism that pushed on open doors) I mentioned the University of Michigan which did the math and fired its PBMs, and is pocketing the savings. Here’s more from Jeremy Smerd at Workforce Management on how Some Employers Look to Break the PBM Habit. The somewhat indignant Chiara Bell of Clarus Consulting who’s got the PBMs in her sights, makes a noteworthy appearance in her quest to derail the monster.

But I love this quote:

The Pharmaceutical Care Management Association, the industry group representing the estimated 50 PBMs nationwide, says the marketplace has determined that PBMs save money for employers by offering a service outside the core expertise of most.

Well they would say that, wouldn’t they.  But the next quote is gambling on the dumbness of the American employer

"The reason everybody uses a PBM, though no one is required to, is because of the savings," says association president Mark Merritt. "If employers can do it and find a new way to build a better mousetrap, more power to them."

I know no one ever went broke underestimating the intelligence of the public, but that is pushing it! It reminds me of W’s line “Bring it on”. Well they might live to regret it.

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Matthew HoltBarry CarolTom LeithcmbJohn Fembup Recent comment authors
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Matthew Holt
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Matthew Holt

And that Barry is exactly what the PBMs would hope you’d think. Pity that the pesky commie rag the Wall Street Journal keeps on finding slight problems with that logic…

Barry Carol
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Barry Carol

CMB, As I’m sure you know, PBM’s have pharmacists on staff for consultation with patients, and I have utilized them on several occasions. However, on a per prescription basis, the mail order business model is likely to require far fewer pharmacists than retail stores need. You are correct about the PBM’s margins being considerably higher if you exclude the cost of the drugs which the PBM’s are generally not at risk for paying. However, conventional health insurers also earn high margins on ASO contracts for self-funded clients, but I don’t see any of those clients moving to bring the administrative… Read more »

cmb
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cmb

Close examination of the annual reports of Medco and Express Scripts, respectively, do purport to be a low margin business. However, they are misleading in that the Costs of Goods Sold are actually included in the revenue – employers pay a large chunk of the costs of the goods. Strip that away and you have very different margins. The elimination of the pharmacist in some scenarios may not, in fact, be a good thing for the chronic disease patient. It is good to see someone who is happy with the value proposition of their PBM. Be sure to pay close… Read more »

Barry Carol
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Barry Carol

PBM’s are a low margin on sales business, though they earn a respectable return on equity and total capital. Specifically, for 2005, Medco’s net after tax profit amounted to 2.0% of sales while Express Scripts earned 2.4%. I’m confident that these companies, along with their smaller competitors, would not have built the business they have without, on balance, satisfying customers. Mail order facilities run by the large PBM’s are extremely highly mechanized. For maintainence drugs intended to manage chronic conditions, patients rarely have to consult a pharmacist which makes this subset of drugs ideally suited for filling by mail. My… Read more »

cmb
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cmb

No. Because ER costs have increased every year significantly. The “savings” alleged by PBMs are false because they are made up and based on erroneous assumptions. It is about shifting power back to the consumer from the PBMs.
I was not trying to be “brilliant,” just telling you like it is.

Tom Leith
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Tom Leith

> Give me your data. Don’t hire me for pay. Hire
> me for the value I create through slashing your
> Rx costs through a percentage of realized savings.
Ummmmmm….
Isn’t this the pitch the evil PBMs have made?
t

John Fembup
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John Fembup

“I say replace the doers with leaders who can command proper data and transparency, particularly in the prescription drug procurement process.”
Command. Now why didn’t I think of that? Thank you, my problems are solved.
Brilliant.

cmb
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cmb

Interested: Sure. Give me your data. Don’t hire me for pay. Hire me for the value I create through slashing your Rx costs through a percentage of realized savings. It would be ridiculous to staff benefits departments in correlation to annual health care spend. It is not a matter of being understaffed and overworked. It is a matter of working smarter and efficiently with the proper data. The first excuse of most poor performers is that they are understaffed. The problem lies in the fact that the Department leaders are not strategic themselves – they are doers, not leaders, hence… Read more »

John Fembup
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John Fembup

“Well they might live to regret it” Maybe. But it’s also possible that you don’t have a clear picture of how corporate benefits departments typically work. They are after all not line functions but staff functions; they aren’t profit centers, they are cost centers. Benefit departments commonly suffer reductions in force and other resource reductions faster than line functions, and resource increases occur more slowly than for line functions. As a result over the past 10-15 years, most benefits departments have become understaffed and underfunded relative to the amount of corporate spending for which they are theoretically responsible, and relative… Read more »