There are higher profits for processing claims than in collecting premium and absorbing risk.
For every claim that crosses the PBM’s ledger, the PBM gets a portion. There is never a claim that doesn’t make the PBM money whereas the medical carrier only profits from claims that are unpaid. The PBMs gross profit is their real revenue. As a profitable business model measured against a model funded by premiums, the PBM’s no-risk model is highly appealing.
From the onset, drugs are priced by the manufacturer and are influenced by FDA regulations that include exclusivity periods and generic launch delays. During the exclusivity period, drug manufacturers want to solidify their market position by handing out coupons directly to the potential product consumer. This strategy circumvents PBM formularies and bypasses employer-based co-pay structures and yearly deductibles. This strategy enables the drug manufacturer to gain market share for its brand. However, drug manufacturer coupons can work against a plan's strategic prescription benefit choices and possibly even the rebate structure, resulting in increased drug spend.
Towards the end of a brand’s patent life manufacturers will offer rebates to PBM’s for premium formulary placement and can negatively impact your organization’s total drug spend. The benefits from a PBM's rebate decisions may not trickle down to benefit their client's drug spend.
Retail drug pricing begins with what is called the MAC (Maximum Allowable Cost), this is a ceiling cost on most generic medications. For example, Amoxicillin 500mg, a commonly prescribed antibiotic, typically wouldn’t cost an employer a MAC greater than 50 cents per pill.
Retail outlets shop around to use the drug manufacturer with the lowest costs. This makes business sense as it is a necessity to keep operating costs low. However, mail order facilities are not retail outlets, and have different business priorities. Mail order facilities may use just ONE manufacturer which may not always be offering the lowest cost. If they use MAC pricing at all, it is substantially different from retail Mac and it is not uncommon to see a prescription filled at a mail order facility cost 3 times more than retail.
There are alternatives to a Mail Order network that can generate actual plan savings. Let APC negotiate aggressive discounts on the plan’s lowest MAC setting. APC can help design a plan that can provide your members with convenience and true savings across the board.
If you’re unsure what type of networks your PBM will allow or need guidance on choosing a plan that fits, please contact an APC consultant for a complimentary plan review.
Mail order services have always been depicted as a cost reduction strategy for pharmacy plans, but the untold truth is it’s not. While most PBM contracts show a greater discount at mail order, it’s important to note that it is usually a greater discount on a greater cost.