Position Yourself to Win—Set Up Your Own PBM Program

If you’re like many TPAs, you contract with a full-service pharmacy benefits manager (PBM) who manages the network, processes and pays prescription drug claims, develops and maintains the formulary, negotiates discounts and rebates with drug manufacturers, and provides mail order and other specialty services. The idea, of course, is to save money for your clients, but a fully bundled program may cost more than necessary. That’s because most PBMs use spread pricing, where they purchase drugs at one price, invoice their clients at a higher price and profit from the spread. Others use pass-through pricing, which requires them to pass the purchase or reimbursement price to their clients and generate profits by charging flat administrative fees. Maybe it's time to look for an option that provides a cost savings to your clients and adds to your revenue at the same time.

Cost Considerations
An alternative to using a full-service provider is to set up your own in-house PBM program. Profit is built into every operational area of a PBM arrangement, so by eliminating the “middleman,” you can deliver vital services at reduced costs, pass the savings to your clients, and still generate healthy revenue and margins for yourself. This unbundling of services also gives you a better understanding of prescription ingredient costs, greater control over the products used, added revenue from formulary rebates and lower administrative costs.

Health insurance carriers have been moving toward insourcing pharmacy benefit management for the last 10 years. Offering access to PBM features without the extra cost not only gives TPAs a competitive edge, it can generate savings of 10% and more on overall drug spend. Says Michael Meyer, senior vice president of sales and marketing for SXC Health Solutions, Inc., “Even 20 years ago a select few plan sponsors were considering managing pharmacy in-house and they were usually medical professionals such as pharmacists driving the process. Today, more businesspeople are driving the process and hiring medical professionals to implement. The financial advantages are just too good to ignore.”

Getting Started
Setting up an in-house PBM program isn’t as complicated as it may seem—nor do you have to do it alone. Consultants, such as ARMSRx, can analyze your current PBM arrangement to help you determine if you should stay with it, switch to another provider or bring it in-house. Your consultant can also point you to vendors who can provide the back office support you may need.

Many experts recommend you approach insourcing one step at a time, focusing first on areas that will create the greatest cost impact and the least disruption of service. You might, for example, implement enrollment and drug utilization review but wait to assume pharmacy network management. You may also decide to continue outsourcing highly specialized services such as mail order or call centers.

If you are ready to set up your own PBM program, here is a basic “to-do” list:

1. Take stock. Consider hiring a consultant or conduct your own review to determine if your current account management, customer service and IT departments can handle the additional responsibilities of an in-house program.
2. Rent a pharmacy network (this is just like renting a PPO network—you select the network based on the coverage and services you need and then negotiate the fees). Calls to the pharmacy help desk can be handled by the network you rent, and you can continue to outsource the mail order and specialty pharmacy distribution services.
3. Invest in a good PBM claims adjudication software program. When shopping, select
   a vendor, such as SXC Health Solutions, who has in-house professionals ready to assist
   with set-up and ongoing clinical guidance and pharmacist support.
4. Train your customer service team. Customer support is key. Train your staff to read
   the benefit screens and respond to members professionally and accurately.
   

Take Control of Your Future Now
Those in the know say 2008 will be a cutting-edge year for new products, so even if you’re not ready to bring a PBM program in-house right away, this is no time to sit on the sidelines. One way to gear up is to create a PBM “shell,” perhaps with your own private label, and outsource all the components. This gives you the structure to add services and functionality as you see fit. Remember, too, that leverage drives formulary rebates, so don’t hold back because of your size. It’s not about lives, but about market share. If you have a certain book of business, you’ll be able to get aggressive pharmacy contracts just like the big carriers. PBM does not have to be “just another service” you offer your clients but a profit center for your operation!