Draft:Pharmacy Benefits Optimizer


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Pharmacy benefits optimizers (PBO) are companies that take an independent approach to pharmacy benefits management that focuses on helping self-insured companies manage their carve-out pharmacy plans [1] to minimize costs that might otherwise make such benefits financially unfeasible. [2] PBOs minimize these costs by negotiating the best contract terms with pharmacy benefits managers (PBMs) and analyzing the use of pharmacy benefits to avoid unnecessary overpayments.

Business model
With a pharmacy carve-out plan, an employer separates (or “carves out”) prescription drug benefits from their other healthcare benefits to contract directly with a third-party administrator. [1] This gives the employer more control over the details of the plan, but also makes it financially liable for the cost of the medications used by its employees. A PBO works with pharmacy benefits brokers, self-insured companies, and the employees covered by the plan to negotiate favorable contracts and apply targeted clinical utilization management strategies that help the employer maintain sustainable drug costs and increase member satisfaction. [3]

Differences between a PBO and a PBM
PBOs are distinct from PBMs, which administer prescription drug programs for a variety of health plans, including self-insured employer plans. PBMs work directly with pharmaceutical manufacturers, retail pharmacies, and online/mail-order pharmacies to negotiate price discounts and rebates that can lower the price of medications covered by pharmacy benefit plans. [4] Revenue is generated through direct compensation in the form of administrative and service fees from the original insurance plan, as well as indirect compensation in the form of manufacturer rebates and any difference between a drug’s final sale price and the PBM’s negotiated price with the manufacturer (sometimes known as “spread pricing”). [5][6] A PBM that owns a retail, mail-order, and/or specialty pharmacy also receives revenue from dispensing medications through that channel.

PBOs work alongside and in concert with PBMs but are distinct from them in that they work as advocates for the employer and its members. While PBOs do use solutions like discounts and rebates to minimize plan costs, they also have more latitude to suggest changes to medication choices or drug therapy approaches to reduce pharmacy costs. PBOs provide direct services to mid-market employers in the form of account management, clinical program management, and member services. [3] Revenue is generated through direct compensation in the form of administrative and service fees from the PBM in exchange for the services they provide directly to the plan and its members on behalf of the PBM.

PBOs manage plans to lowest net cost by two main mechanisms: negotiating pharmacy benefits contracts and managing drug utilization.

Contract negotiation
For smaller self-insured employers that lack the negotiating leverage of larger companies, PBOs use the collective buying power of their aggregated brokers and clients to negotiate pharmacy contracts with superior rates, rebate terms, and service than the employer could obtain on their own [2]. They also use data analytics to structure the plan design and recommend a drug formulary that will address the specific health needs of the client’s employees at the lowest net cost.

Clinical services
A significant concern for self-funded employers is the cost of the drugs themselves, since they, the employer, will be responsible for the full cost of the drugs covered by the plan. One or more covered individuals taking an expensive specialty drug, or a long-term drug therapy, can make a pharmacy benefit plan prohibitively expensive for a company to provide.

Doctors of pharmacy working for PBOs independently review high-cost claims to determine whether the same clinical effects of an expensive drug or treatment plan can be achieved with the use of less-expensive drugs. [8] Using this method, a PBO is able to reduce drug costs for the employer without sacrificing the quality of medical treatment for the employee or member. [3]

Formulary management
A drug formulary is the list of preferred drugs covered by a benefit plan. A formulary is often tiered according to the clinical value of the drug and the cost to the consumer. A drug is designated a low clinical-value drug (LCV) [9] when its effects can be replicated with the use of one or more less expensive drugs. When utilization data indicates that an employee of a self-funded company might be using an LCV, the PBO’s clinical services team contacts that employee’s healthcare provider to determine whether a lower-cost, higher-value drug could be used in its place without compromising the patient’s quality of care. [10]

This could include parity-priced drugs, [11] in which case a patient could experience the same benefits of a drug while taking fewer, higher-dose tablets, or using a different, lower-cost version of the same drug to equivalent effect. Through managing a plan’s formulary, a PBO may prioritize generic drugs and drugs that maintain clinical integrity to achieve the same health effects at the lowest net cost. [12][13]

Utilization management
While a healthcare provider’s judgment is paramount for a member’s healthcare, changes in a patient’s physical condition, new advances in healthcare, and other factors can affect that patient’s needs with regard to drug therapies. [14] When utilization data shows regular, costly prescription payments, the PBO’s clinical services team contacts that employee’s healthcare provider to determine whether any of those changes may have occurred and validate whether the current drug dosing regimen is clinically appropriate. [15]

Prior authorizations
Unlike a PBM, price does occasionally trigger a prior authorization (PA) by a PBO as is required to ensure that a given drug is being used as appropriate for medical purposes as approved by the FDA. When a member goes to a pharmacy to purchase a drug that requires a PA, the PBO’s clinical services team validates the request by examining the patient’s chart notes and lab data against U.S. Food and Drug Administration (FDA) guidelines and national standards of practice and, when necessary, redirecting a member to a clinically appropriate drug therapy alternative.