PBM 101: A Refresher on The Role of Pharmacy Management in Workers’ Comp

Increasingly, PBMs are relying on massive stores of data to identify broader patterns that inform individual prescription decisions.
By: | March 8, 2019 • 6 min read

The pharmaceutical industry has been making regular appearances in the news cycle recently. Coverage of America’s opioid epidemic and ongoing discussion around drug price transparency have kept prescription medication a headline topic. Pharmacy benefit managers (PBMs) are central to that conversation. They have a valuable role to play in managing both drug cost and patient safety — especially in workers’ comp.

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Increasingly, PBMs are relying on massive stores of data to identify broader patterns that inform individual prescription decisions. According to David Young, President and CEO of Optum Workers’ Compensation and Auto No-fault, this is a PBM’s true value proposition.

We sat down with David to discuss the core functions of a PBM, what makes workers’ comp unique, and how organizations should really be leveraging their PBM:

R&I: Let’s start with the basics, what is the function of a PBM?

David Young: A PBM administers the medication benefit for companies or health plans on the group health side, or in the case of workers’ comp, for the carrier, self-insured company or their TPA. The primary purpose is to reduce the medication cost and maximize health outcomes.

David Young, President and CEO, Optum Workers’ Compensation and Auto No-fault

The primary functions of a PBM boil down to four buckets.

The first is the claims processing, which is the processing and payment of prescription medications. The second component is managing the network of pharmacies. That can include home delivery and specialty pharmacies along with traditional retail pharmacies. The third leg of that is developing and managing the formularies and putting together clinical programs around quality and utilization. And then lastly the PBM negotiates medication prices directly with drug manufacturers.

Read more about prescriptions that should raise red flags here. 

The PBM is really thought of as the hub of the prescription benefit. We’re taking care of all the key stakeholders in the value chain — the injured worker, the health plan or the policy holder, the pharmacies, and the pharmaceutical manufacturers.

R&I: What are the key differences between a workers’ comp PBM and a PBM in the group health environment?

DY: What makes the comp world unique is it’s managed at the state level, and there’s a significant amount of legislative activity around PBMs, formularies, and opioid management.

There are more than 1,200 bills related to workers’ comp that are up for discussion in various states. Obviously not all of those will be adopted. but the regulatory component of a PBM is extremely important and we stay very close to that to ensure we’re providing our customers an up-to-date, compliant program.

I think sometimes the customer base forgets that aspect of it; the complexity of managing at 50 different state levels.

There are more than 1,200 bills related to workers’ comp that are up for discussion in various states. … I think sometimes the customer base forgets that aspect of it; the complexity of managing at 50 different state levels.

Another complexity is that we don’t get into plan benefit design, which is what a traditional PBM would do. Their services are rendered under a ‘per member per month’ payment model. We don’t do that because we don’t have members, we have injured workers, and we never know how many of them there will be at any given time.

So where a group health PBM would apply actuarial analysis to price a program, we’re more driven by the regulations. We price by what the state says is allowable.

When you look at opioids, for example, a number of state workers’ comp programs have dictated that you can only dispense three days’ worth of pills at a time, and then you need a follow-up prescription. Group plans aren’t subject to the same rules, and don’t necessarily approach the opioid issue in the same fashion.

R&I: PBMs do a have large role to play in managing the opioid crisis within the workers’ comp world. How else do PBMs provide value in workers’ comp?

DY: The real value of a PBM is its ability to produce better medical outcomes for injured workers by carefully vetting drugs for safety and efficacy, and delivering them at a fair price. A PBM’s drug utilization and clinical programs are what really deliver the value.

At Optum, for example, we have a committee of independent practicing physicians, nurses, and clinicians that come together on a quarterly basis to vet every medication, not based on cost, but based upon its efficacy against the disease state that is being attacked.

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And obviously cost comes into play. If you have two drugs that are equally as effective on a disease state, you want to drive to the lower cost alternative.

But I think it’s important to note that cost is not the first driver in a good PBM program. It’s really driven towards medical outcomes, and ensuring that the individual gets back to maximum medical capacity as quickly as possible.

R&I: Does every PBM take this approach, where quality is a priority over cost? How should organizations utilize their PBM to take advantage of these benefits?

DY: There are organizations that use their PBM as simply a transaction processor, but they are leaving a lot of value on the table. Drug utilization and network management services are something any traditional PBM would offer.

Health care tends to be very fragmented, but aggregated data lets you pull the pieces of the puzzle together and make a complete picture. You can rise above the transaction-level and see a patient as a whole.

What organizations should really look for, however, are PBMs that are taking these services to the next level by looking to aggregated data for deeper insights. This means pulling together data from separate programs and looking outside of workers’ comp to examine broader trends in prescribing patterns. When you have that data, you can behave more proactively, flagging those prescribers that are outliers and letting your constituents know to proceed with caution.

Health care tends to be very fragmented, but aggregated data lets you pull the pieces of the puzzle together and make a complete picture. You can rise above the transaction-level and see a patient as a whole.

R&I: So technology is playing a larger role in the services that PBMs offer?

DY: Yes. We are leveraging the power of data analytics and artificial intelligence to drive to a much better clinical result.

Opioid management provides a good example. By amassing and bringing disparate data sets together, we can see things like an individual patient’s daily morphine equivalent dosage (MED), how many prescribing providers are treating a given injury, and whether they are communicating with each other. When we spot red flags like a consistently high MED, we can recommend other utilization tools, a weaning schedule, or drug adherence protocols.

There’s a push in the marketplace towards electronic medical records and singular holding place for a lot of this data, but until that exists, we can serve as that central portal for adjusters. We can bring a level of transparency that has not existed in the past.

Technology also plays a huge role in educating adjusters. These days, adjusters are trying to handle anywhere from 300 to 600 cases at a time. Presenting information to them that is actionable and synthesizing the data into something that they can react to — that’s an extremely important part of what we provide to the marketplace.

R&I: How does consolidation among health systems, pharmacies and health plans impact PBMs?

DY: The pace of consolidation within the healthcare system over the past decade is unlike anything I’ve ever seen, but this is great for us because all of their data is then aggregated on a common platform. We can then integrate with that data and gain a holistic picture of each patient.

There’s a push in the marketplace towards electronic medical records and singular holding place for a lot of this data, but until that exists, we can serve as that central portal for adjusters. We can bring a level of transparency that has not existed in the past.

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Previously the approach was so fragmented… we’d have to chase down doctor’s notes and records from 10, 15 or 20 different systems. From a technology perspective, consolidation creates transparency both for the health systems and for PBMs.

From an operational perspective as well, consolidation also streamlines our process. Everybody has a customer portal or workflow engine, and one of the challenges for our customer base is managing all of those platforms across the myriad managed care organizations. Consolidation reduces that pain point by creating fewer parties to interact with.

And of course, being part of a larger health system affords us greater negotiating power with pharmacy network and drug manufacturers. &

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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

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