The Role of Pharmacy Benefit

Managers in the Health Care

System

OKLAHOMA

CHAMBER OF

COMMERCE

HEALTH SUMMIT

OCTOBER 10, 2018

https://youtu.be/lVrvJ8Oevns

• A pharmacy benefits manager (PBM) is a health care

company that contracts with insurers, employers, and

government programs to administer the prescription drug

portion of the health care benefit

• PBMs work for our clients, insurers, employers and

government programs, to perform a variety of services to

ensure high-quality, cost efficient delivery of prescription

drugs to consumers

What Is a PBM?

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The Value of PBMs

PBMs aggregate the buying clout of millions

of enrollees, enabling plan sponsors and individuals

to obtain lower prices for their prescription drugs.

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35.7%Self-Insured Employers

31.6%Commercial Health Plans

18.0%Medicaid*

14.7%Medicare Part D

More than 266 million Americans receive pharmacy

benefits provided through PBMs

PBMs’ National Footprint

266MILLIONAMERICANS

*Excludes Medicare-Medicaid Dual Eligibles where drugs are covered by Medicare Part D.

Source: Visante estimates prepared for PCMA, 2016.

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Who Are PBM Clients?

Commercial Health Plans/

Government Programs

Union Trusts/Taft-Hartley Plans

(ERISA-exempt)

Private Sector Employers Public Sector Employers

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Pharmacy Benefit Management Services

Pharmacy

Networks

Claims

Processing

Price, Discount and

Rebate Negotiations

with Pharmaceutical

Manufacturers and

Drugstores

Formulary

Management

Mail-service

Pharmacy

Specialty

Pharmacy

Drug Utilization

Review

Disease

Management and

Adherence

Initiatives

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The Plan Sponsor RFP Process

Plan Issues RFP

Request for Proposal (RFP) dictates the terms and conditions of the PBM services

PBM Bids

Multiple PBMs bid in a highly competitive environment

PBMs offer various design models depending on plan sponsor’s specific needs

Plan Decision

Plan sponsor may utilize benefit consultants for direction

Decisions often reflect need of a robust pharmacy benefit that delivers cost savings

Plan Design

PBM provides options based on the plan sponsor’s unique needs

Plan sponsor makes the final decision about the drug benefit plan

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A Plan Sponsor Is the PBM’s Client

• The plan sponsor always has the final say when creating

a drug benefit plan

– E.g., pharmacy network, formulary, use of mail service, member

cost-share, rebate sharing

• There is no one-size-fits-all model because each plan

sponsor has unique needs

• Plan sponsor retains the contractual right to audit PBMs

compliance with the contract, and exercises that right.

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The value of PBMs Vs. The High Cost of

Drugs

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This Photo by Unknown Author is licensed under CC BY-SA

• Brand drug manufacturers establish prices within a

monopoly established by federal patent law

• Health plans and PBMs do not have any control over

the price the manufacturer sets for a drug — but PBMs

have some tools to drive down drug costs

• Patient cost-sharing often represents only a small fraction

of the total cost of the drug

• Until other drugs are approved for the same disease or

condition, manufacturers have little incentive to reduce

their prices

Tackling High Drug Costs

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Brand Drug Prices Increased 58%

Over the Past Four Years

Source: IQVIA Institute. Medicine Use and Spending in the U.S.: A Review of 2017 and Outlook to 2022, April 2018. Kaiser/HRET Survey of Employer-Sponsored

Health Benefits, 2017; IQVIA Formulary impact Analyzer (FIA). IQVIA Institute, December 2017.

Chart notes: Indices sourced from Kaiser/HRET Employer Survey4 include: family coverage, premiums, workers earnings, overall inflation. Brand, generic and total

final out-of-pocket costs and brand pharmacy prices are for commercially insured, Medicare Part D and cash payment types sourced from IQVIA Formulary Impact

Analyzer. All charted values are indexed to set their 2013 value equal to 100.

Changes in Healthcare Costs or Cost Drivers 2013-2017, Indexed (2013 Values + 100)

PBMs save plan sponsors and consumers an average 35% compared

to expenditures made without pharmacy benefit management

The Value of PBMs

Source: Visante, prepared for PCMA. February 2016.

$0

$200

$400

$600

$800

$1,000

$1,200

Uninsured Patient/Without PBM Insured Patient/With PBM

Ave

rag

e C

os

t p

er

Pil

l

$1,000

$589

PBMs Reduce Cost

Head to Head Competition Reduced the Cost of an

Average Hepatitis C Drug by More Than 40%

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• Drugs for treating Hepatitis C

– Sovaldi, by Gilead, first drug that could cure the disease

– Cost at introduction: $84,000 for 12-week course of treatment

– $2.1 billion in U.S. sales in 1st full quarter on the market

– Combination product Harvoni, also by Gilead

• Combined, $12.4 billion in 2014 sales, almost all in the U.S.

– AbbVie finally introduced third product, Viekira Pak, $83,000

– With competition, PBMs negotiated price concessions and

spending dropped

The Value of PBMs

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PBMs offer a set of core services to clients designed to

contain drug expenditures. Key tools include:

The value of PBMs: PBM Tools

Pharmacy

Network

Management

Claims

Administration

Negotiation and

administration of

product discounts,

including

manufactures

rebates

Mail-service

Pharmacy

Specialty

Pharmacy

Services

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• PBMs require network pharmacies to compete on service, price, convenience, and quality

• Clients typically have three types of retail pharmacy networks they can include:

– Open Pharmacy Networks: A plan’s enrollees can use their prescription drug benefits at all network pharmacies for the same copay/cost sharing

– Preferred Pharmacy Networks: Preferred pharmacies offer plans better discounts than the non-preferred drugstores, where enrollees benefit from lower copays/cost sharing

– Limited Pharmacy Networks: Plan sponsors create a network limited to drugstores that offer deep discounts, which can lower costs by up to 10%. Plan enrollees have the same copay at all pharmacies in the network

Cost-effective Pharmacy Networks

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• Specialty pharmacies specialize in the unique clinical,

storage, and shipping requirements that some oral,

injectable, inhalable, and infusible products require

• Retail and manufacturer-affiliated pharmacies are not

typically equipped to manage the full range of products

and services that PBMs and payers require for the

distribution and management of specialty drugs (e.g.,

treatments for hepatitis C, multiple sclerosis, cancer, etc.)

What Is a Specialty Pharmacy?

In 2020, nine of the 10 best-selling drugs by revenue will be

specialty drugs, compared with three out of ten in 2010, and

seven out of ten in 2014

Growth of Specialty Drugs

Source: Drug Channels, July 28, 2015. “Pharma’s Bright Future: Meet the Top 10 Drugs of 2020.”

2010 2014 2020

Projections show that specialty drugs

will account for 50 percent of all drug costs in 2018

Growth of Specialty Drugs

Source: Artemetrx, “An Evaluation of Specialty Drug Pricing Under the Pharmacy and Medical Benefit,” March 2014

Forecasted PMPY Net Drug Spend Across Pharmacy

and Medical Benefit for Commercial Plan Sponsors

Specialty pharmacy professionals play a key role in patient care by

providing:

Value of Specialty Pharmacy

Data analytics to

drive better patient

outcomes

24/7 access to

pharmacists and

clinicians specially

trained in the

patient’s disease

and clinical

applications of the

specialty drug

Physician

consultations to

address side effects,

adverse reactions,

and non-compliance

Patient care

management services

incorporating multiple

safeguards to ensure

patient safety

• Manufacturers are increasing drug prices for both brands

and generics

• PBMs play a unique and central role in holding down

costs and increasing quality

• PBM tools deliver savings for plan sponsors and

consumers, underscoring the success of the competitive

marketplace

Conclusion

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Thank You