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Math that Makes Sense: Is Your PBM Focused on Their 'Savings' or Your Actual Spend

January 7, 2020

What is your PBM focused on, ‘savings’ or your real spend? It should be a simple question, but pharmacy benefits are becoming unnecessarily complex as new drugs come to market and prices continue to rise. Because of this complexity, payers have to be extra vigilant when selecting a pharmacy benefit manager (PBM) to understand the various impacts to their bottom line and what they will actually spend for pharmacy benefits. It’s time to use common sense math to understand your real drug spend when evaluating your PBM partner.  

Think about your PBM selection in terms of a typical shopping experience. A promotional sign in the window advertises huge savings, another sign inside displays 50% off, you walk out with your discounted purchase and feel ecstatic about how much you saved. But did you really ‘save’? Did you really need the items you purchased? Would you have spent less if you purchased from another retailer or under a less popular brand name? Substitute this shopping experience for your PBM. Are you paying for drugs you may not need in order to generate these huge savings numbers?

Fundamental Flaw: Not All Spreadsheets, Formularies and Clinical Programs are Created Equal

It can be difficult to determine if the savings calculation listed on a spreadsheet really results in lower overall spend when you’re not comparing apples to apples to begin with. When selecting a PBM, there is no industry standard way ‘savings’ is evaluated and compared. There are many elements to compare and it can be confusing, so what can you do? Many will review the most recognizable columns on the spreadsheet, such as discounts, dispensing fees, rebates and base administrative fee. But there is a fundamental flaw in many spreadsheet comparisons, starting with the top line. Not all PBMs start with the same base cost of prescription drugs before discounts, rebates and fees.

Take into account these items often managed differently between PBMs:

  • Formulary exclusions and preferred drug list
  • Specialty drug list
  • Low-value or non-essential drug list
  • Clinical rules and the effectiveness of utilization management programs (prior authorization, step therapy and quantity limits)

All of these variances between PBMs can result in a significant differential margin (as much as 5% or more) before you even start your spreadsheet comparison, which results in a skewed bottom line, also known as plan sponsor spend. This may be more common practice math instead of common sense math, which should look at all of the financially impactful elements as part of the PBM comparative analysis.

For math that makes sense, it’s prudent to consider some variables that are not typically evaluated, such as:

  • High-cost, less-effective drugs that should not be preferred on the formulary, but rather included on non-essential drug lists for no coverage.
  • Prior authorization programs that have too many denials (possible fee generators) or too few denials (possible rebate generators).
  • Understanding the margin of error with any evaluation methodology.

It is important to ensure PBM evaluations account for and quantify a range for the margin differential given various PBM differences of formulary preferred drugs, non-essential drug lists and effectiveness of utilization management programs, such as those listed above.

More and More Variables Lead to Confusing Contracts and Complex Math Manipulation

Many PBM proposals are recognizing these different variables and responding by adding even more pricing variables. Guarantees on Rx trend, per Rx cost, Rx inflation, Rx usage and more are not necessarily adding value to the spreadsheet comparisons nor simplifying the math. In fact, more variables likely means there are more chances to manipulate the numbers, adding more complexity in an already complex comparison.

Historically shrouded in vague definitions and contractual loopholes, PBM contracting can be confusing. Is your PBM working collaboratively to create a clear and flexible contract? Look for contract terms and definitions you cannot understand, at least to some degree, when comparing contracts. If the contractual language consistently references other sections of the contract, includes more caveats than commitments, and has lengthy lists of things not included, not counted, or not guaranteed—that does not enable simple common sense math.

Simply Stated: Common Sense Math Values Your Actual Spend Over Inflated Savings Numbers

Math that makes sense should be clear and simple. It’s time to change how complex savings is evaluated and focus on true drug spend. A common sense approach takes into consideration a balanced formulary strategy with a thoughtful clinical philosophy to limit utilization of unnecessary, high-cost drugs—all designed to work together in the best interest of your members and your bottom line. From contracting and implementation, to formulary and utilization management, our common sense approach balances clinical outcomes with your overall spend. It’s clear why more and more plan sponsors are choosing the visibly different PBM option, EnvisionRx.


See how our common sense approach works for your bottom line and your members.

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