As employers consider signing on with a new health care provider ahead of the upcoming fall benefits enrollment season, recent acquisitions among pharmacy benefit managers are adding a new wrinkle to their choices.
Pharmacy benefit managers, or PBMs, are third-party vendors that process prescriptions and are the middlemen between employers, pharmacies and drug manufacturers. Generally, PBMs make money through service fees, operating mail-order pharmacies and negotiating with pharmacies and drug-makers.
Express Scripts' $29 billion acquisition in April of Medco Health Solutions created the nation's largest PBM representing 115 million covered lives (workers and their families), or one-third of all prescriptions filled in the United States. This was followed by SXC Health Solutions Corp.'s intent to acquire Catalyst Health Solution Inc., which would create the nation's fifth-largest PBM. That deal is expected to close in the second half of 2012.
"I think people are aware that changing PBMs can save them large amounts of money, and they are also aware that marketplace developments create further incentives to conduct RFPs," says Linda Cahn, a lawyer and founder of Pharmacy Benefits Consultants in Morristown, New Jersey. "The question is whether organizations will act. I hope they will, as they have nothing to lose, and much to gain if they do."
Negotiating with a PBM is a complicated process and many employers rely on lawyers and benefits consultants to help them understand fee structures and contracts, which typically have three-year terms. Cahn says that most employers may not be in a position to look for a new vendor this year, and even if they are, larger organizations may find the process too difficult and cumbersome, she says.
Today, the majority of the prescription drug expenditures are managed by about 50 PBMs with Express Scripts representing about 31 percent of the market followed by CVS Caremark Corp., the nation's second-largest PBM, with 17 percent, according to Drug Benefit News.
F. Randy Vogenberg, principal of the Institute for Integrated Healthcare in Sharon, Massachusetts, and a pharmacy benefit adviser to the Mid-Atlantic Business Group on Health, says that the recent deals are creating a dichotomy between big players that can offer competitive costs and the smaller players who are more nimble and can offer more services beyond claims adjudication.
"So many different things are going on in this marketplace that it will make your head spin," Vogenberg says. But he predicts that few employers will switch PBMs or make any major changes to their pharmacy benefit for 2013. "Change creates controversy, and employers are not looking for controversy."
Still, employers should brace for some disruption in the first year or two after the PBM deals, according to Michael Jacobs, a vice president at Truveris, a pharmacy data analytics firm. "In the case of Express Scripts and Medco you have call centers that must be consolidated. It's very difficult for these huge organizations to make quick changes. They do things in a cost-efficient manner for themselves, but the question is: Will employers get what they need?"
To ensure employers are making the right choices with a PBM, Walgreen Co. officials have been meeting with companies to help them review their contracts. The company lost a chunk of its business when it parted ways with Express Scripts on Jan. 1 after disagreements regarding payment issues. Millions of customers with Express Scripts drug plans were left looking for a new pharmacy.
"Now is the time to really understand what their contract does," says Jeffrey Berkowitz, a senior vice president at Walgreen. "We are providing education on marketplace dynamics and encouraging employers to review their contract, to know when their contract is up and what their right to a particular pharmacy is."
And "Employers are ready for a change," Berkowitz adds. But Brian Henry, a spokesman for Express Scripts, doesn't see it that way. He says Express Scripts' clients will likely stay put, noting the company's historic 90 percent retention rate.
Workforce Management, June 2012, p. 8 -- Subscribe Now!
Rita Pyrillis is Workforce Management's senior writer. Comment below or email firstname.lastname@example.org.