Pharmacy Benefits: Traditional vs. Pass-Through Models
It’s no secret that pharmacy benefit managers (PBMs) are under serious scrutiny when it comes to their influence on drug prices. Plan sponsors, benefits directors, et al. need greater visibility into their benefits program and flexibility in plan design to ease concerns about over-spending and member health. If anyone had questions about that need previously, recent regulations such as the Consolidated Appropriations Act (CAA) address it by making it a requirement to know what “plan money” and member premiums are being spent on.
Knowing how PBMs operate is the first step to ensure that goals are aligned. But having fiduciary responsibility makes understanding the three main PBM models, and how they can impact savings opportunities, service you’re expected to receive, and how much control you have over benefit design changes and your data more important. After all, attestations are required.
Understanding Carve-in and Carve-out Pharmacy Benefits
Before we dive into the specifics of traditional and pass-through models, it is important to understand what “carved-in” and “carved-out” mean. If pharmacy benefits are packaged with the medical carrier (i.e., health insurance), it is “carved-in,” then you have a health plan or third-party administrator (TPA) managing it. This has a major impact on the level of transparency and overall convenience that you will experience with your pharmacy benefits model.
On the other hand, if you have a benefits plan that separates the prescription drug program, then you have a carved-out model.
Traditional vs. Pass-Through Models
While “traditional” PBMs may not label themselves as such, this model is easy to spot. The traditional model focuses on discounts, narrow formularies, and high rebates to achieve cost savings. They typically do not charge an admin fee and are less transparent about how they make money. The contracts are complex and how pricing is arrived at is opaque, at best. Additionally, traditional PBMs typically own and operate their mail service and specialty drug pharmacies.
Pass-through PBMs claim to pass all discounts and rebates back to the plan sponsor. Plan design and contracts are more flexible because they usually generate revenue from an admin fee instead of from rebates and pharmacy transactions; however, a close look at a pass-through contract will reveal many similarities to the traditional model. While pass-through PBMs "claim" their only source of revenue is the admin fee, they too often own and operate mail and specialty pharmacies, which provide another source of income.
Most pass-through PBMs end up operating more like a hybrid of pass-through and traditional models. For example, a PBM may only pass-through rebates from one channel, or they might only share partial pharma manufacturer-derived revenue with plan sponsors. Since transparency is severely limited, it’s unknown how much a PBM retains.
Where does Capital Rx fit in?
We don’t. Our Clearinghouse Model is the first step in creating a fair and efficient market for drug pricing, simplifying the typical PBM contract, and bringing full visibility to what a PBM model should look like.
Contact us today to learn more about our Clearinghouse Model.