Matt Gibbs
I dove into important aspects of how the traditional pharmacy benefit management (PBM) model differs from Capital Rx’s more aligned model in Our Single-Ledger Model™ - It’s More Than a Retail Story. Taking a quick step back, our Single-Ledger Model is a relatively new pricing framework that Capital Rx launched officially in 2019 that brings visibility to drug unit prices and eliminates the variability that patients and employers experience with drug prices.
The retail side of the story includes allowing buyers and sellers to see/know the price of a drug at the pharmacy counter. We can do this by leveraging a well-known, accepted pricing benchmark used by many Medicaid Fee for Service programs across the country that’s been deflationary: NADAC – the National Average Drug Acquisition Cost. For the mail order and specialty home delivery piece of the puzzle, Capital Rx regularly “shops rates” to ensure that claims are processed at a “lowest of” unit price.
Pharma Revenue is what I’m addressing herein, and most people associate it with rebates. We describe the basics of rebates in What Is the Role of a Pharmacy Benefits Manager (PBM)?, but there’s more to it because rebates are not the only source of revenue PBMs receive from pharmaceutical manufacturers.
Why does Pharma Revenue matter?
Stakeholders responsible for procuring and managing pharmacy benefit programs must understand and be able to ask good questions about how healthcare service providers like PBMs make money off of their plan and plan members. This is especially crucial given the fiduciary responsibilities mandated by the Consolidated Appropriations Act (CAA).
Long story short, PBMs retain a portion of the pharma revenue they receive in the ordinary course of providing employers, labor unions, and other payers with pharmacy benefit coverage. This creates an incentive to steer plan members toward high-cost drugs with substantial rebates.
Pharmaceutical Revenue Takes Several Forms
Rebates & Formulary Administrative Fees: How a rebate is defined matters, as does whether they are disclosed at the drug level (NDC). PBMs receive multiple revenue streams from pharma but may only share a portion with the plan. There are several rebate variants (e.g., formulary and market share), and the greater the rebate, the greater the incentive to steer patients toward high-cost drugs.
Clinical Program Funding: Pharma funds clinical management or adherence programs at a level that allows the PBM to retain profit beyond operational program costs. This source of revenue is particularly opaque, and clinical programs may steer members toward preferred products, which could be more costly. Funds should be passed through.
Inflation Protection Penalties: A PBM may negotiate “pricing protection” in its pharma agreements to prevent outrageous drug price increases. This pricing protection is often managed separately from the standard rebate reconciliation with a plan, so the PBM is often tempted to keep a portion of this upside.
Copay Card/Assistance Programs: Most PBMs own and operate their own drug discount card programs. They also service many other discount card marketing channel partners as a part of their business. There are many fees associated with discount cards that retailers and members pay at the point of sale. These dollars are captured by the PBM and are rarely shared with a plan sponsor. Additionally, PBMs may blend in some of their discount card claims and submit them for full rebate value on the back of their commercial clients’ utilization. These dollars are never shared with the client.
Data Sale Revenue: Traditional PBMs aggregate and sell claims data to pharma for “market research” purposes. Details of data sharing are not disclosed to patients or plans.
Does Capital Rx use a Rebate Aggregator?
Great question. Yes. A brief history: the PBM marketplace has consolidated under four major aggregator agreements, and similar to how Capital Rx goes to market for mail order and specialty home delivery regularly, we also do our due diligence on rebate aggregators. Several mid-market PBMs have recently stopped their direct contracts with pharmaceutical manufacturers and have rolled up to one of the four aggregators available.
Capital Rx has selected the same aggregator for three years running due to some important contractual considerations, including audit rights and:
- A low net cost formulary strategy and “fully insured” philosophy of the aggregator (i.e., they do not chase “low-value” drugs with high rebates).
- The availability of drug-level rebate detail ensures Capital Rx can make appropriate cost/benefit decisions for our clients.
- The broadest definition of “manufacturer revenue” to be passed through to all clients at 100%.
Capital Rx is here to help.
If you have questions or are open to a market check, CLICK HERE to get in touch and learn more about our Single-Ledger Model and Capital Rx's pharmacy benefit solutions. On average, our clients save 10% - 30% in the first year after switching to Capital Rx from a traditional PBM, on a PMPM basis, net of rebates and administrative fees. We pass through pharma revenue, and drug-level rebate reporting supports better plan management; with alignment and visibility comes control over pharmacy program spend.
If you enjoyed this article, SIGN UP to have Capital Rx Insights delivered to your inbox.