Alternative PBM models: 4 proven strategies to reduce drug spend
Managing utilization growth of high-cost brand products with potential for off-label use helped minimize spend in some of the faster-growing drug categories like migraine and diabetes, says a new report.
In addition to concerns of drug affordability, regulators and payors are demanding increased transparency from the pharmacy benefit management (PBM) industry. Most PBMs claim “pass-through” or “transparent” practices, however definitions vary. This creates confusion in expectations, understanding and achievement of reduced drug cost. Currently, the three largest PBMs control approximately 80% of the total pharmacy benefit market. The traditional PBM model often operates on hidden revenue streams and benefit when drug costs increase as they retain a portion of discounts, rebates and fees negotiated on behalf of clients. These challenges came to a head in 2022 as PBMs received the lowest satisfaction rate in three years.
Fortunately, alternative PBM models exist and offer a proven track record of generating comparative, real savings for both plans and members while supporting desired health outcomes. For example, despite seeing notable increases in brand drug list prices and utilization across a variety of covered medicines in 2022, Navitus Health Solutions clients on average experienced minimal and controlled year-over-year total drug cost change. In fact, Navitus’ 2022 Annual Drug Trend Report highlights that 49% of commercial plans saw their net drug spend decrease compared to 2021.
According to the report, Navitus drove down pharmacy benefit costs for its clients through several actions, including:
Operating with a lowest-net-cost philosophy
Navitus’ PBM model is designed to better align with plan sponsor and health plan needs. It was created to fully pass through all discounts and rebates to true acquisition cost, as opposed to only projected and/or guaranteed cost. Under the latter, PBMs that overperform that expectation maintain those savings as incremental margin rather than passing it along to clients. When working with Navitus, clients can audit invoiced cost to the acquisition cost, demonstrating how the model eliminates markups and opaque practices commonly seen within the pharmaceutical supply chain.
This pass-through model supports a commitment to lowest net cost. It favors lower cost, clinically appropriate medication therapies to ensure clients and members realize significant savings. According to the report, new Navitus commercial clients experienced a 12% average reduction in total drug cost compared to the previous year with another PBM.
Implementing appropriate formulary and utilization management
Effective formulary and utilization management are critical to ensuring net drug spend is well controlled. Navitus uses a formulary management approach that delivers a high-performance drug mix, including low-cost generics and less expensive brands. According to its 2022 Drug Trend Report, Navitus’ recommendations to manage utilization growth of high-cost brand products with potential for off-label use helped minimize spend in some of the faster-growing drug categories like migraine and diabetes.
Deploying cost-plus specialty pharmacy
Cost-plus pharmacy involves charging the client the same price the pharmacy pays for the medication, plus an additional fee for patient management and shipping. Lumicera Health Solutions, a wholly-owned Navitus subsidiary, is the nation’s largest cost-plus specialty pharmacy. While other specialty pharmacies leverage a benchmark price or average acquisition price to drive reimbursement, Lumicera’s first-in-first out (FIFO) cost-plus model delivers significant savings on important generic specialty medications. This was demonstrated again in 2022 despite cost and utilization growth.
Improving pharmacy network contracting
Pharmacy network rates are the reimbursable amount that a pharmacy will receive from a PBM for dispensing prescription medications to patients. These can increase for a variety of reasons, including rising drug costs, dispensing mix (traditional and specialty medications), and variable cost basis used by some PBMs.
In 2022, Navitus achieved improved pharmacy network rates and delivered those savings to clients. Using a responsible and sustainable pharmacy network contracting strategy with a single, maximum allowable cost (MAC) list for generic drugs, the amount billed to the client is the same amount reimbursed to the pharmacy. No mark-up is added, thereby ensuring clients are not charged more than what was paid to the pharmacy.
Related: Key PBM reform bills advance in Senate, House committees
It is essential to work with a PBM that not only demonstrates an understanding of the pressures plan sponsors and health plans face but also employs practices to help mitigate them.
Brent Eberle is Senior Vice President & Chief Pharmacy Officer of Navitus Health Solutions. Brent is a licensed pharmacist in Wisconsin and a member of the Wisconsin Governor’s Task Force on Reducing Prescription Drug Prices.