3 Boxes to Check to Make Sure Your PBM Is Giving You the Best Prices

While PBMs should be helping payers negotiate drug prices, these common overcharges could prevent workers’ comp insurers and self-insureds from getting the best deals.
By: | June 19, 2020

For many workers’ compensation insurers, PBMs play a big role in keeping drug spend down. PBMs negotiate prices with manufacturers and pharmacies and are able to provide payers with deals in many cases. 

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While PBMs are helpful, there are situations where they may be overcharging payers. Drug spend is a major cost-driver for insureds and many wish their PBM was more transparent about pricing. 

CompPharma estimates that workers’ comp pharmacy spend was between $2.9 and $3.5 billion in 2018, a year when overall drug spend dropped 10.1%. The same survey found that five out of six respondents identified pricing transparency as the top problem they wished their PBM would change.

The basic problem with PBM pricing, to sort of distill it out, is it is a lot more complicated than people think,” said Joe Paduda, principal at Health Strategy Associates LLC and president of CompPharma, a research and consulting firm that seeks to to improve pharmacy programs in workers’ comp.

If a person not well-versed in pharmaceutical pricing looks at a contract, it might appear to be very straight forward and very simple, because they don’t understand what it is that they’re reading.

Payers don’t have to wait for PBMs to become more transparent, however. They can conduct their own audits and watch for common overcharges on their own. Here are three common places overcharges occur that every payer should know about.

1) Avoid PBM Overcharges By Making Sure You Have a Recent Contract

Many overcharges can be avoided by having a recently updated contract. Drug prices in workers’ compensation have plummeted in recent years due to the fact that many common workers’ compensation drugs are available as generics.

“In the workers’ comp PBM industry, especially over the last two years, prices have plummeted,” Paduda said. “What we’re seeing is there are fewer brand drugs dispensed to work comp patients,  and the generic drugs are getting cheaper as time goes on because more and more manufacturers make them.

The consolidation of PBMs has also led to a decrease in drug spend for workers’ compensation. Currently, there are two major PBMs in the market, myMatrixx and Optum Rx. Given their dominance in the market, these two companies have some pricing power with manufacturers and retail pharmacies. 

Payers cannot reap the benefits of either an increase in the number of generic drugs or the consolidation of PBMs, however, if their contracts haven’t been renegotiated to reflect these pricing changes.

“If payers haven’t renegotiated their contracts in the last couple years, they really should,” Paduda said.  

2) Know Your Definitions of Brand and Generic Drugs

Updating your contract to reflect recent pricing trends is just the beginning. To truly prevent PBM overcharges, payers need to know and understand the fine print embedded in their contract language. 

Many payers might think the definitions of “brand” and “generic” drugs are pretty standard. A brand drug is typically considered to be a patented FDA-approved drug, while a generic is a pharmaceutical that uses the same chemical substances as a brand drug that is no longer patent-protected. 

That seemingly standard definition, however, might not be the one in your contract. Some PBM contracts define a brand drug as a drug that is either patent-protected or one that has a single source generic, which could up costs for payers. 

Definitions are typically, ‘Here’s what a brand is and here’s what a generic drug is,’ ” Paduda said. “If they’ve changed the definition of brand to include single source generics, that effectively means more drugs are priced at the brand rate than really should be. As a result, the PBM’s customers may well be paying a brand price when they should be paying a much lower generic drug price.”   

3) Check Pharmaceutical Pricing Compendiums and MAC List Prices

Once payers have negotiated a fair price and reasonable definitions for brand and generic drugs, they still need to look through their contracts for other places overcharges may hide.

Let’s say you’ve got good definitions for brands, you’ve got a good definition for a generic, and if you’ve established a really solid price,” Paduda said. “Then the question is, is your PBM actually giving you the price that you think you have?”

Sometimes overcharges are caused by contracts that don’t require a PBM to use the most recent pharmaceutical pricing compendium.

Pharmaceutical pricing compendiums are put out by various publications and they list the prices of generic drugs on a given day. PBMs can then use these prices to determine the rates workers’ compensation insurers pay for the medications. 

Given that generic drug prices decline over time, knowing which pricing compendium your PBM is using could be important for preventing overcharges. If a PBM uses a pricing compendium from January to adjudicate the price of a drug that was dispensed in May, then payers may be overcharged.

The drug price has declined over that time, but because some PBMs’ contract language doesn’t require the PBM to use an updated price, they essentially can make a lot more margin by not bothering to update the pricing tables,” Paduda said.

Another place workers’ compensation insurers may be being overcharged is in the spread between retail pharmacy MAC lists and the ones PBMs use for payers. 

MAC lists determine the maximum allowable cost that a PBM plan will pay for generic drugs and multi-source brands. Overcharges occur when there is a spread between the MAC list used by a retail pharmacy and the one used by a PBM. 

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For example, a pharmacy’s MAC list may price a drug as five cents per pill, but the PBM may charge seven cents per pill.  

Another potential problem is MAC pricing. The payer thinks that they’re getting a good deal because they have this MAC price, which is separate from the regular pricing, which ‘protects them,’ from gaming by retail pharmacies,” Paduda said. “In reality, in some circumstances the MAC guarantees the PBM makes a bigger margin on MAC drugs.

What can payers do to prevent these overcharges? Paduda says that they need to review, review, review. 

Overcharges occur because unlike all other services that workers’ comp insurers and TPAs buy, rarely do they ever audit or review their PBMs,” Paduda said. 

Payers need to make sure they have a current contract and current pricing, that contract must reflect the expertise of people who really understand pharmaceutical pricing and PBM pricing, and PBM performance must be monitored on an ongoing basis.” &

Courtney DuChene is a staff writer at Risk & Insurance. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]