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.


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.


“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.


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.


“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.



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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]