PBMs -- Scorpions and Dogs

In January of the year 2000, the Henry J. Kaiser Family Foundation issued a report titled: The Role of PBMs in Managing Drug Costs: Implications for a Medicare Drug Benefit.  It is one of those special reports in that it is clear, fair and balanced in its presentation. Some thirteen years later, it is good to reflect back on what it said and to analyze the current state of PBMs and their impact on healthcare management, both for efficiency and cost. The results, by and large are abysmal for the nation, while wildly profitable for the largest providers.

I draw your attention to the goal espoused in the opening pages of the report:

The intent behind proposals to use PBMs is to apply private sector best practice techniques to a publicly funded benefit.

In a nutshell that is a euphemism for applying devious, underhanded tactics to charge customers as much as possible just shy of having the client revolt.

PBMs are not servants to their clients. They are corporate pariahs whose goals are profit maximization at the customers’ expense.

To that end, PBM contracts essentially prohibit clients from knowing any more than the PBM thinks they should know. In most cases, this means the client should know that his costs went up again this year, as they have in years past, without asking for an in-depth explanation. In other words, “Trust us.”

It is possible that the acronym PBM was chosen to simplify the words Pharmacy Benefit Manager. It is also possible that this title and the acronym were chosen because the terms Shell Game and Smoke and Mirrors, while more accurately reflecting what publicly traded PBMs do, were already taken.

While PBMs smile and talk softly, the wording of the contracts belies their true purpose. Think of it as the dog (customer) and the scorpion (PBM), together on one side of the river. The scorpion says ever so gently, “The river is moving way too fast and I fear I can’t get across on my own. Can you take me there on your back?”

“But you’re a scorpion. Your venom is fatal. Why would I do that?”

“I promise I won’t sting you. Look, I only ask for safe passage to the other side. That’s all. Trust me.”

Safely ensconced atop the dog’s head and just barely above the waves, the scorpion watches as the shore comes ever closer. Within yards of landfall, his pincer penetrates the dogs skull and, immediately, his paws cease their strokes.

“Why did you do that?,” the dogs asks plaintively, as his body starts to roll with the waves. “Now we’re both going to die.”

“Yes, replies the passenger. I’m a scorpion. It’s what I do.”

PBMs might also stand for Pariahs… you provide the rest.

Not All PBMs Are Alike

The most pernicious PBMs are large, publicly traded corporations that have as their mission to maximize profits for their shareholders – no matter what, no matter how. The top three control between them some 80% of the market and spend millions each year on lobbyists and PR firms in Washington to give them access to legislators with the goal of solidifying their grip on contracts like Medicare.  Americans must take note and beware of these giants because they go beyond feasting at the trough, to gorging themselves lavishly and without remorse on our tax dollars.

Having said that, there are among the hundreds of smaller PBMs, those points of light who have as their mission to provide management services transparently and in the spirit of fiduciaries. It is to these PBMs we should look for management services, because their missions are more consistent with the needs of their clients – to provide good service at a fair price, transparently. They openly state that they seek fiduciary relationships, whereby they serve their customers in every way and openly share each element of their charges to back up their claims.

These PBMs, true servants all, offer every service that the Wall Street listed counterparts without hidden fees, inflated prices and without holding back rebates.

To be clear, here is a comparison of the two models of PBMS:

How PBMs charge for their services

                                                Wall Street Listed                        Smaller, Independent

Admin fees            Very low, may waive them                        Prefer a per member

to get the pharma business             per month fee that a customer can budget                                   

Data Selling                             Make a bundle selling information            Do not sell Data         

                                                to large insurance companies. Data

mining is big business but an

imposition on doctors’ privacy

Spread *                                  The add-on charge for prescription            Do not Spread. In fact

Drugs can range from pennies to            they show the client

Tens of dollars per prescription             exactly what they

filled. Passed on directly to the            paid the just there’s

client for pressing a key.            no doubt.

                                   

Discounts                                Call many discounts by other                Pass along all names

names to keep from passing                         discount

them along.                                               

Delayed Price Changes            Price increases are passed along            Do Not Delay

                                                to the client immediately but they

                                                defer paying them to enhance the

                                                spread

Others yet to be discovered

* Business Owners/CEOs  How would you feel if you discovered you were charged $120 for filling an employee’s prescription when the PBM managing your benefit program paid $30 to buy it? Check your wallets.

How to Be Sure Which PBM You Have

Read the contract and all its fine print. Large PBMs never hide what they’re doing, In fact, they’re quite up front about it. It’s all spelled out in great detail. They tell you there is no fiduciary relationship and they define transparency differently than you or I might.  They key is that it’s not what they say but, rather, how they say it. Most contracts are so well written, it’s hard to discern the truth in what they’re doing.

The best PBM will spell out what they charge, how they charge and, most importantly, what they DON”T charge for or pass through quietly, under the radar.

What is this costing me – Right Now  -- This Minute?

That’s a perfectly good question. After all, if you’re going to go through a rigorous analysis, three should be a good return for the effort. From my research, I find that if a company counts up all the prescriptions it paid for in a year (or a quarter), and multiplies that number by five, it can safely assume the resulting total is a fair estimate. So, for example, if a company with 250 employees on a plan fill 20,000 scripts/period, the savings conservatively accrue to over $100,000 for that period.

Impact on Profits

For simplicity’s sake, let’s assume a company works on a 5 per cent profit margin. That $100,000 savings to the bottom line is the same as a sales increase of $2 MILLION. You do the math. Imagine if, in these hard economic times, your margins are only 2.5%.You decide if it’s worth your time to look.

http://kaiserfamilyfoundation.files.wordpress.com/2013/01/the-role-of-pbms-in-managing-drug-costs-implications-for-a-medicare-drug-benefit.pdf