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.

Categories: Uncategorized

Tagged as: ,

9 replies »

  1. 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…

  2. 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 functions in house. With health insurance being the largest single cost item for many employers these days, I suspect that they are quite sophisticated at evaluating PBM and health insurer performance, especially since they have the resources to engage whatever outside help they may need from the benefit consultant community.

  3. 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 attention to what you are truly paying for.

  4. 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 own employer, who provides insurance for over 100,000 actives and retirees, uses Express Scripts to administer its prescription drug plan and is satisfied with its value proposition. Since, generics account for over 50% of all prescriptions filled but only about 20% of dollars spent on drugs, it is unlikely, in my view, that large employers could perform this function for meaningfully less even if they could buy the generic drugs themselves for less than they are currently being charged because they don’t have the systems to maximize generic substitution when the doc prescribes a brand but does not check the DAW box on the form. I don’t think they could run an in house PBM efficiently either. If they could, more of them would.

  5. 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.

  6. > 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.
    Isn’t this the pitch the evil PBMs have made?

  7. “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.

  8. 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 the continual focus on “tactical.”
    I say replace the doers with leaders who can command proper data and transparency, particularly in the prescription drug procurement process.

  9. “Well they might live to regret it”
    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 to the commitment of time necessary to intelligently manage such spending. One consequence is that the strategic is too often set aside in favor of the tactical – the day-to-day demands of insured people for help accessing care or dealing with claim denials etc. Another consequence is that as much work as possible is outsourced – and too often insufficient attention can then be paid to the performance of the vendor. I think all this helps to explain the comment from the Pharmaceutical Care Management Association.
    If you were willing to give my company a 12-18 month contribution of your time, pro bono, I suppose that would help us get our Rx program into good shape. I don’t have the staff, and can’t tend to it myself because I’m immersed in Part D stuff plus I’m running the department. Sorry I don’t have the budget to hire you for pay. Interested?
    I’m just telling you like it is.