Pharmacies Benefit Managers Pricing Strategies

Pharmacies benefit managers are the liaison between health insurers and employers to ensure that employees’ medication is effectively and efficiently catered for at reasonable prices, reducing the net price of drugs from the list price (Rossetti, Handfield and Dooley, 2011). This is basically by amassing patients and using them as a negotiating bloc with pharmaceutical companies. In so doing, they are able to adopt various pricing strategies and tactics that should benefit all the stakeholders, which in essence put in check the cost of medication. This paper discusses some of the pricing strategies utilized by PBMs, and recommends the most suitable pricing strategy.  

One pricing strategy is to amass as many clients as possible (Rossetti, et al., 2011). This ensures economies of scale with the subsequent savings being often reflected in the pricing of the medication. Moreover, it enables the PBM to have an upper hand during negotiations with pharmaceutical companies and pharmacies, accruing to savings that can be passed to the employers through pricing.

Adopting the right generic program where physicians are encouraged to prescribe drugs that have lost patents is another pricing strategy  (Jones, 2003). Generics are cheap drugs that are available at a fraction of the cost of patented drugs, at between 30%-60% less than the patented drugs. Whilst reducing costs for the employers, generic drugs control utilization and improve patient outcomes. Nonetheless it would require educating the physicians and the patients to appreciate the effectiveness and benefits of the drugs.

For the generic program to be successful, the pharmaceutical benefit manager (PBM) will need to utilize such tools as wholesale acquisition cost (WAC), maximum allowable cost (MAC) and average wholesale price (AWP) (Jones, 2003). The PBM should aim at offering a low MAC for a comprehensive drug list, catering for drugs most prescribed to their clients’ employees. The MAC should also be fair to the pharmacies for sustenance of the network agreement. There are some PBMs who mark up these whilst foregoing administration and dispensing charges. While the hidden costs inherent in the pricing spread may not be immediately obvious to the employer and the plan sponsor, they are bound to discover the real costs in the long-term which would prove detrimental to their relationship with the PBM.

Another pricing strategy would be to ensure good rebates for generic and branded drugs (Stevenson and Bruhnsen, 2015). These are discounts received after sale of prescription drugs. In order to get good rebates, the PBM needs to negotiate for suitable contracts with pharmaceutical companies. Further, they need to increase the market share of the drugs by ensuring that their utilization is enhanced. This is because rebates vary greatly and are mostly dependent on contracts and market share. Suitable rebates are on proven drugs and afford upfront savings for the employer and plan sponsor.  Rebates on blockbuster drugs should be avoided.

The PBM also needs to effect and encourage utilization management (Jones, 2003). This is by eliminating unnecessary and or inappropriate prescriptions for the employees. Whilst this may seem self-defeating for the PBM, it will actually enhance business sustenance increasing revenues in the long-term through cementing and sustaining relationships with the employers by being able to save them costs. Nonetheless, utilization management should not be to the detriment of patient outcomes.

Further, the PBM can assist employers to develop targeted disease intervention programs. This is because a big part of pharmacy costs are on chronic or life threatening diseases such as asthma, depression and cardiovascular diseases. By identifying the main diseases prevalent in a population or among employees, the PBM and the employer can develop suitable intervention programs that target these specific diseases that have high costs and impact (Blavin, et al., 2014). The PBM then educates the physician and the patient about the intervention, leading to cost-savings while enhancing the patient’s care and quality of life.

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Another pricing strategy used by PBMs is having an effective sampling program (Stevenson and Bruhnsen, 2015). This involves awareness of prevailing treatment programs of first-line agents, sharing this information with prescribing providers and provision of the first-line agent samples to primary healthcare providers. Availability and ease of use of the samples ensures that pharmacists and prescription providers choose the first-line agents for the patients. This should not only benefit the employer by reducing costs and managing utilization but also the patient (employee) by enhancing the quality of healthcare by prescribing the most appropriate medication.

Managed formulary avoids harmful and wasteful medication (Jones, 2003). It ensures accurate and suitable prescription that is important for better healthcare as well as in drug cost management. The PBM should hence aid in development of a managed formulary automated program that should detect prescription and medication errors as early as possible.

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PBMs’ pricing strategy may also involve selling prescription data to drug manufacturers and to other third parties (Rossetti, et al., 2011). This data would be used in product development and marketing strategy (e.g. in market research). Hence, the PBMs will make profits this way and consequently reduce such other costs inherent in the prices they charge employers namely administrative and dispensing fees. Increasing utilization of generic drugs is recommended as the most suitable pricing strategy. This is because it provides an affordable plan for the employer and plan sponsor. It also ensures profitability for the drug manufacturer, retail outlet and PBM.  Beyond cost and pricing, most generic drugs also provide positive patient outcomes. Nonetheless use of generic drugs should be in conjunction with the other pricing strategies such as discounts, rebates as well as utilization and formulary management.

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