Pharmacy Benefit Managers Help Companies Cut Costs

Employers can be aggressive in their negotiations with these third-party providers

By SHRM Online staff June 24, 2011

A nationwide survey shows that a majority of responding U.S. employers is using third-party pharmacy benefit managers (PBMs) to process and pay prescription drug claims. Companies are turning to PBMs because they offer better drug prices, according to the results of the survey released June 2011 by Buck Consultants.

Buck‘s Prescription Drug Benefit Survey indicates 57 percent of responding U.S. employers were using PBMs in 2010 vs. 47 percent in 2009.


With 67 percent of respondents citing pricing as "highly important," this rates as the top reason employers opt for PBMs, which are able to offer discounts and rebates from pharmaceutical manufacturers. PBM customer service is rated "highly important" among 65 percent of survey respondents.

The survey identifies strategies employers use to manage their prescription drug benefits and costs. More than 220 U.S. organizations participated in the survey, representing a broad range of industries and more than 2.5 million full-time employees.

"Strong competition among PBMs for employer business has created a buyer’s market for PBM pricing, and we expect this competition will intensify as health care reform is implemented," said Michael Jacobs, principal and national clinical practice leader at Buck Consultants. "Therefore, employers can be aggressive in their negotiations with PBMs."

Prescription Drug Coverage

The survey revealed that:

Nearly all (96 percent) of respondents provide active employees with prescription drug coverage.

50 percent offer retirees prescription drug plans, and 75 percent of these employers intend to continue this benefit to Medicare-eligible retirees over the next three years.

The top reasons given for providing prescription drug coverage were:

The positive impact on medical claims.

Business competitiveness.

Attracting and retaining key employees.

The belief that it‘s the right thing to do.

Pharmacy benefit costs continue to increase and, on average, currently represent more than 15 percent of employers‘ total health care costs. According to the survey, the most common prescription drug management initiatives in use were:

Formularies (90 percent of respondents).

Utilization management programs (78 percent).

Large cost-sharing differentials between cost-sharing tiers (77 percent).

Employee assistance programs (EAPs), disease management programs and wellness programs also are considered by employers to be tools that help manage prescription drug benefit costs and effectiveness.

Specialty Drugs

Specialty medications, used to treat chronic catastrophic illnesses such as Multiple Sclerosis and Hepatitis C, are typically used only by one percent or less of covered employees, but represent 15 percent or more of pharmacy plan costs. These specialty medications are complex drugs that are often self-injected or infused and can cost more than $2,000 for a 30-day prescription.

Despite the rising cost of these drugs, 33 percent of respondents did not know the percent of their company’s overall drug spend attributed to specialty medications. Moreover, a majority of employers (58 percent) use the same participant cost-sharing for specialty drugs as used for other prescription drugs.

"Specialty drugs will be the major driver of pharmacy cost increases over the next three to five years," said Jacobs. "We anticipate specialty drugs will represent upwards of 30 percent of drug costs within the next three or four years. Considering the double-digit annual cost increases we‘ve seen recently, it‘s clear that more needs to be done to manage the costs of these medications moving forward."

The most common components of specialty drug management programs were:

Utilization management (45 percent of respondents).

Centralized distribution (39 percent).

Coordination with case managers (35 percent).

Step-therapy protocols (34 percent).


Related Articles:

Specialty Drugs Driving Pharmacy Benefit Costs, SHRM Online Benefits Discipline, April 2011

Rx Consumers Prefer Pharmacies Over Mail, Want 90-Day Supply, SHRM Online Benefits Discipline, January 2011

Preferred Pharmacy Networks Can Cut Costs, SHRM Online Benefits Discipline, December 2010

Most Still Uninformed About Prescription Drug Costs, SHRM Online Benefits Discipline, December 2010

Related Videos:

Tim HeadyBetter Drugstore Decisions

Providing information via pharmacists can help employees make better decisions when purchasing medications, says Tim Heady, CEO of UnitedHealthcare Pharmacy.

Brian SweetValue-Based Benefits Design

By lowering co-pays and providing health coaching, employers may get cheaper, better employee health care, says Brian Sweet, Chief Pharmacy Officer at Wellpoint.

Larry Hicks, senior consultant with the Hay Group, discusses issues involved in outsourcing pharmacy benefit management programs.

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

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