Workers' Comp

The PBM Evolution

Pharmacy benefit managers are becoming a greater force in clinical case management, adapting to higher customer expectations. 
By: | November 2, 2015 • 8 min read

The impact of pharmacy spend on the bottom lines of workers’ compensation payers remains a concern, especially as the opioid epidemic rages on.

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That is the case even though drug costs have stabilized somewhat over the past few years — increasing at a slower rate and in some cases remaining flat.

They rely heavily on their pharmacy benefit managers to help keep utilization under control and contain costs. But despite the crucial role PBMs fill — or perhaps because of it — questions have been raised concerning their place in the industry going forward.

PBMs first emerged in the late 1980s, filling the need for a way to keep rapidly rising drug prices in check.

Without a middle man to hold the pharmaceutical industry accountable to consistent pricing standards, there was little to prevent gross overpricing by manufacturers or to guarantee reliable prices from region to region. PBMs provided stability and predictability in the market, and eased the billing process for payers by unifying vast networks of pharmacies.

d Rey Quinones, vice president of product development, Helios

Rey Quinones, vice president of product development, Helios

Serving a primarily financial purpose, PBMs secured transactional cost savings for health plan payers through the creation of pharmacy networks and rebates from pharmaceutical manufacturers.

“When PBMs first started, they were primarily focused on financial and administrative aspects, like reducing the amount of paper billings that occur, and providing transactional savings,” said Rey Quinones, vice president of product development for Helios.

“The second thing they provided was access. By establishing pharmacy networks, PBMs helped ensure injured workers had access to their prescribed, claim-related medications.”

Move to Clinical Management

But it wasn’t long before PBMs started to fill a larger, more critical role for their clients, expanding their horizons and shifting into the clinical side of pharmacy cost management.

“They have absolutely evolved because they had to,” said Cheryl Larson, vice president of the Midwest Business Group for Health, a nonprofit business coalition comprised primarily of human resource and health benefit professionals.

Whether independent or owned by a health plan, PBMs developed and began to offer more clinical services in order to stay relevant and competitive.

“There were clinical initiatives taking place within health plans, or maybe through specialty pharmacy programs, or employers were hiring disease management companies to help with adherence,” Larson said, “so in order for [PBMs] to be more relevant, they had to move in the direction of clinical management.”

Ron Skrocki, vice president of product management and development, GENEX Services

Ron Skrocki, vice president of product management and development, GENEX Services

Those clinical management services include utilization review conducted by a physician or pharmacist, and recommendations for interventions on high-risk claims, such as sending educational materials to the claimant, communicating directly with a prescribing physician, assigning a nurse case manager, or ordering urine drug monitoring.

“PBMs’ clinical interventions were not very robust 10 years ago. There were weak utilization controls,” said Ron Skrocki, vice president of product management and development at GENEX Services. “But PBMs have to be the backbone, the guardians of the intervention process, and interventions have now become more tangible.”

Even formularies, which began as a tool to limit prescriptions to certain brands or types of drugs, have become tailored to fit more specific clinical needs.

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“We created workers’ compensation-related formularies,” Quinones said. “In group health, you have formularies that are somewhat indifferent to where you are, what line of business you’re in — the list of medications covered is very broad. In workers’ compensation, the medications you cover are really more focused, and more individualized because each claim is unique.”

At Helios, a team of pharmacists determined what medications were most commonly prescribed for different types of workers’ comp injuries, and broke them down into categories by time after injury. For instance, a medication needed in the first six weeks of treatment may not be appropriate later on.

“The level of accountability is evolving and we’re starting to see the PBM model evolve to meet the needs of employers as key purchasers.” — Cheryl Larson, vice president, Midwest Business Group for Health

They later developed surgery formularies, since the medications required post-surgery would certainly be different than if no surgery had taken place. For example, a narcotic would make sense to manage the pain of an invasive procedure, but not to manage the pain of a strained ankle after a fall.

Broader changes in health care may also drive the expansion of clinical services. The move away from fee-for-service to a more holistic, outcomes-based reimbursement model, for example, emphasizes a patient’s entire course of care and recovery, rather than isolated treatments for specific conditions.

“PBMs have focused their attention on the cost of medication, which is a function of unit price and utilization,” said Ken Martino, president and CEO of Injured Workers Pharmacy (IWP). “This is a narrow focus that can over-emphasize cost containment over outcomes based on the overall treatment plan a doctor has established for the patient. There has to be more of a balance between cost containment and patient outcome.”

Transparency Issues

Payers have grown more sophisticated and aware of how pharmacy costs impact their overall medical spend.

For a PBM, serving their core function of delivering cost savings requires maintaining strong relationships with drug manufacturers in order to get the best rebates and discounts, but clients are demanding that their own relationships with their PBMs earn a greater priority — namely by seeking more transparency on deals with manufacturers and the spread of fees PBMs charge to pharmacies and payers.

“Specialty drugs and biologics are the future of pharmacy, and involve some costly medications and treatments. As medical treatment and medications evolve, so must the PBM industry.” — Ken Martino, president and CEO, Injured Workers Pharmacy

“Employers have gotten a lot smarter in recent years,” Larson of MBGH said. “We represent large employers, and they’re relatively sophisticated and have good relationships with their suppliers, whether it’s a PBM or a health plan, and their contracting reflects that they know where their rebates are going, that they are transparent.”

Most payers don’t have access to what PBMs pay to a pharmacy, so they cannot determine the “spread” — the difference between what a PBM pays a pharmacy for filling a prescription and what it charges a payer, and ultimately pockets as profit.

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Same goes for manufacturer deals. If the manufacturer promises a steep discount on a particular drug, PBMs may be motivated to place that medication in their formulary even when a more effective or safer option might exist.

In 2012, the U.S. Department of Labor issued regulations that any entity providing goods and services to an ERISA plan administrator — namely, PBMs — had to “disclose both direct and indirect compensation to enable pension plan fiduciaries to determine whether they are paying reasonable compensation for those goods and services.”

In 2014, the ERISA Advisory Council re-examined those regulations.

With flat per-member, per-month fees, clients know that PBMs have no financial incentive to support less effective or less safe prescriptions.

According to a summary of the Council’s findings, “plan sponsors of group health plans who testified at the Council hearings were unanimous in their view that they face many challenges managing pharmacy benefits on a cost effective basis. However, plan sponsors uniformly testified that PBM services are a valuable part of this effort.”

In other words, health plan and workers’ comp payers recognize how vital PBMs are to prescription management, but they want to have a look behind the curtain to see what exactly their money is buying.

Cheryl Larson, vice president, Midwest Business Group for Health

Cheryl Larson, vice president of nonprofit Midwest Business Group for Health

“The level of accountability is evolving,” Larson said, “and we’re starting to see the PBM model evolve to meet the needs of employers as key purchasers.”

As their clinical initiatives indicate, PBMs have acknowledged those needs and are working to better align their goals and incentives with their clients’ by shifting the focus to overall care and improved outcomes.

More PBMs — especially newer, smaller players — are also moving away from spread pricing, rebates and per-claim fees as sources of revenue. Instead, they charge clients flat per-member, per-month fees and establish performance standards agreed upon by both parties. With this model in place, clients know that PBMs have no financial incentive to support less effective or less safe prescriptions.

Strategic Partners

While PBMs are making moves towards more transparent contracts, rebuilding a business model takes time and a certain amount of foresight to ensure new agreements benefit both parties long term.

Some experts say PBMs can foster more trust and openness with their clients by evolving from a straightforward vendor into a “strategic partner,” adopting a more consultative approach in clinical care.

In that way, the clinical teams at PBMs will be looked upon as subject matter experts and expected to provide more guidance as biologics and pharmacogenomics become more widely available.

They are already being drawn more deeply into the claims management process, taking a seat at the table alongside adjusters when tricky claims are discussed and treatment decisions made.

“Specialty drugs and biologics are the future of pharmacy, and involve some costly medications and treatments,” Martino said. “As medical treatment and medications evolve, so must the PBM industry. This will require PBMs to develop closer relationships with patients, physicians and pharmacists — they must engage in the treatment or they could be left out.”

It might also mean getting involved in regulatory affairs. Workers’ comp and health plan payers agree that stricter regulations are needed in order to control physician dispensing and the sale of repackaged drugs — two of the biggest cost drivers. While PBMs cannot control what drug manufacturers do with their supply, they could add their two cents to the public discussion and advocate for legislative change that would limit those practices.

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“From a legislative and regulatory standpoint, we have greater acknowledgement for the benefit that our data and experience can bring to the table,” Quinones of Helios said. “For example, our government affairs team is actively engaged in closed formulary discussions taking place in many states. PBMs have been using formularies for decades, so we have a lot to share there.”

“PBMs have had to grow more robust in tracking regulatory change,” Skrocki of GENEX said. “There is more of a regulatory and compliance focus now.”

Martino also forecasts greater consolidation among PBMs, pharmacies and health plans, which would to some degree eliminate the issue of lack of transparency by aligning the interests of the entities. This would also fit into the more integrated, outcomes-based health care world.

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R10-1-15p32-34_4Drivers_inDep.indd

Part I: The Pharmacy Cost Creep

Spending on prescription drugs accounts for a large share of workers’ comp medical costs, but utilization can be controlled.

R10-15-15p30-32_5Cost_inDep.inddPart II: Data Key for Claims Controls

Sophisticated pharmacy data allows workers’ comp payers to spot utilization red flags.

 

112015_10_indepth_150pxPart III: The PBM Evolution

Pharmacy benefit managers are becoming a greater force in clinical case management, adapting to higher customer expectations.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]