The PBM model: minor adjustments needed: pharmacy benefits management companies need only commit themselves to properly aligning their business goals with that of their clients

Risk & Insurance, Oct 1, 2003 by Michael Nameth

The Pharmacy Benefits Management (PBM) industry has enjoyed tremendous success over the past 10 years largely because of its unique ability to manage the rising costs of prescription drugs on behalf of payers. As PBMs have grown, Wall Street analysts, regulators, journalists and customers are seeking to better understand the PBM practices that produced success. I believe an appropriate business model can be identified as the catalyst for a PBM's success. It is the result of rigorous adherence to a basic value equation critical to the long-term success of the PBM/client relationship: full alignment of our respective business goals with a special focus on achieving the best possible clinical outcomes.

There are three steps to take when developing, conducting and growing client relationships. The first is to develop an annual business plan with the client, detailing agreed-upon goals, initiatives and projects. The plan also includes quarterly performance reviews. The next step is to develop clinical decisions, which come from a clear focus on achieving the best possible patient outcomes and cost management as the formula for success. The third step is to disclose revenue sources, including all client-paid fees, manufacturer rebates, other manufacturer payments and pharmacy network margins, to provide transparency and to ensure the PBM/client relationship is built on solid ground.

More than ever before, purchasers of health care services are looking at the overall health care picture including both medical and pharmaceutical expenditures. A sound strategy for managing a patient's care includes a review of both the medical and pharmacy information.

PBMs also offer very efficient technologies for processing prescription drug claims and integrating information to alert dispensing pharmacists of potential drug interactions and other drug utilization conflicts. PBMs have invested in technology to improve operating efficiencies and to develop new products and services such as Web-based applications. The investment required to provide such an offering is difficult for a small organization or health plan to fund and support. The future of more efficient prescribing and patient management will rely heavily on the participation of all PBMs.

Fees paid to PBMs for products and services have declined because of intense competition for new business, increased operational efficiencies and the trend of health care consultants, health plans and employer groups to pay as little as possible for PBM services.

To some degree, this phenomenon has led to much of the misunderstanding in the industry today. It is the back-and-forth between client and service provider that has become de rigeur in health care commerce. Companies seek to be compensated fairly for the services and value they provide while purchasers seek to pay below-market prices for the company's services and the value being provided. Call it the commodilization of PBM services. In so fan as the future does not appear to hold any change in this oft-times friendly tete-a-tete between client and PBM, the latter will be forced to seek out new revenue streams to offset any losses or lower margins directly attributed to the loss leader-type pricing currently the norm in the PBM industry. The number of prescriptions written will continue to rise because of demographic trends and because expensive new drug therapies continue to be developed. Health plans and employer groups will continue to seek out the expertise needed to create affordable prescription drug programs and assist with the management of drug costs.

The PBMs are uniquely positioned to meet this need and will be called upon to do so if they commit themselves to aligning their business goals with that of their clients.

Michael Nameth is general manager of WellPoint Pharmacy Management in Thousand Oaks, Calif.