Episode 29 – Ask Mike Anything – Your PBM Questions Answered

Mike Stull (0:09)

Hi, and welcome to a special December episode of the Employers Health HR Benecast, your source for expert commentary and insights on current health benefits-related news and strategies. This is your host, Mike Stull. Before we get started with our new Ask Mike Anything episode covering employee and pharmacy benefits questions submitted by our audience, I’m excited to share details on our first in-person event in nearly two years.

In its fifth year, the 2022 Pharmacy Benefits Conference will bring together the best and brightest professionals in the pharmacy benefits to cover value-based strategies that help plan sponsors develop, design, and deliver comprehensive yet affordable pharmacy benefits. We’ve already lined up an excellent group of experts in the pharmacy benefits industry to cover the latest developments in gene therapy, biosimilars, the clinical pipeline, and the pharmacy pipeline and more. The event will be held at the Hilton at Polaris in Columbus, Ohio, March 16th. Stay tuned for details on registration and we hope to see you there. And be sure to check out our events page at employershealthco.com/events for details on all of our upcoming virtual and in-person events.

And as always, don’t forget to listen until the end for the key word to enter to win a $50 Amazon gift card just for listening.

You must enter the key word to be eligible for the gift card drawing, so to be sure to listen all the way through and enter it in the form on the H.R. Benecast page. Working with hundreds of employers throughout the U.S., our team is frequently asked questions about the pharmacy benefit, and we’ve decided to begin sharing those questions and the answers on our Ask Mike Anything episode. So I’m joined today by Emily Clevenger, our Director of Marketing here at Employers Health, and Emily is going to be sharing some of the questions we’ve recently received.

So welcome, Emily, and feel free to get us started.

Emily Clevenger (2:22)

Hi, Mike. So our first question, many clients and consultants don’t want to chase big rebates, but coalitions seem to have the most aggressive rebate guarantees. How can clients and consultants trust that Employers Health isn’t just trying to win business by providing big rebates on a spreadsheet?

Mike Stull (2:40)

Yeah, so I mean, talk about coming out of the gate on fire. So great question. The biggest challenge for the coalition is trying to design a solution that appeals to the most organizations as possible.

And so each one of our PBM contracts has has different formulary versions from formularies that maximize the rebate yield to others that are more of a generics first formulary. And so there’s there’s that flexibility within each contract. Second, our clinical teams have designed clinical edits to the formulary that do things like excluding some of the low value drugs that have high prices and are simply on a formulary to drive rebate higher rebate yields.

So probably around two thirds or so of our clients utilize at least one of these custom edits. Some of those edits do have associated reductions in the rebate guarantee, but it’s still to the client’s advantage to not cover those particular drugs. The last point that I’ll make about the term rebate chasing is that it can it can be misleading without some context.

So remember that rebates are additional discounts offered to PBMs by pharmaceutical manufacturers. And there are particular drugs where there just isn’t lower cost competitors. And so in those cases, a plan should want to get as much discount as possible.

The big PBMs have the larger rebates, and that’s why all the smaller PBMs and health plans use a bigger PBM now for rebates, even in the case where they’re competitors. The big coalitions like Employers Health are able to negotiate more of those discounts for their clients. And so typically, when we look at the spreadsheet, we have higher rebate guarantees.

So in a lot of those cases, you know, when we bid on business, we look at what the client and consultant are asking for, and then we align our formulary and clinical management strategy to those requirements. And if we have the higher rebates on the spreadsheet, it’s because we have more leverage.

Emily Clevenger (5:09)

Great. So wouldn’t using a coalition just add another middleman to the PBM equation? And aren’t there enough middlemen already negatively impacting the system and supply chain?

Mike Stull (5:20)

Yeah. So yeah, another hot one coming in. Well, I think, again, the term middleman immediately gets a negative connotation when, you know, they really exist everywhere in our lives.

So, you know, just to think of an example, I don’t go over to the JM Smucker company to get my Jif peanut butter. I get it through a middleman in the supply chain. And the same goes for about everything we consume.

I think the real question in determining whether an additional middleman is good or bad is whether they provide additional value to either the supplier or the buyer. So, if we think about the ultimate disruptor for low value middlemen, at least that I know of, it’s Amazon. And what did Amazon do when it came to pharmacy?

Remember, there was a lot of press around, you know, the excitement of how Amazon was going to disrupt the pharmacy benefit and pharmacy supply chain. Well, what it ended up doing, at least for now, is it partnered with the existing middlemen in the supply chain. And that’s a trend we see across the board.

All of these mergers and acquisitions, you know, really go up and down the supply chain for pharmaceutical manufacturers to health plans, to PBMs, retail pharmacies and others. It really is an arms race and volume matters. So for the single employer or the single plan sponsor that’s not working with other employers, I think the question is how do they maintain their leverage in this otherwise consolidating marketplace?

And working through an employer led coalition makes a lot of sense when you recognize that this dynamic is taking place. So what we have seen is that, you know, we are adding a lot of value to the employers and the clients that we have. It’s why some of the largest clients that we have have been part of this program for, you know, nearly 20, 20 plus years.

And so they recognize the value that we provide. And in that case, yes, we end up being a middleman. But also, yes, we add a lot of value to our clients.

Emily Clevenger (7:46)

Great. But aren’t PBM coalitions all doing the same thing? And what makes employers’ health different?

Mike Stull (7:53)

Well, I think all PBM coalitions, you know, negotiate a contract with the PBMs for their participating groups to use. Most of them do do a market check. Some do an audit.

And that’s probably where a lot of the similarities end. In terms of what makes them different, the ownership structure of coalitions vary. Some are owned by consultants as a means for driving additional revenue and margin to their organizations.

Others are owned by other corporations like for-profit hospital systems and private equity firms. True employer coalitions like Employers Health, and there are others, either don’t have owners or co-ops where the owners are the members that participate. In these cases, the value of operating a coalition ends up inuring to the participating employers and their participants versus some other corporate bottom line.

So the structure of the coalition definitely differs and definitely matters. The competitiveness and structure of the contracts varies pretty dramatically as well. Many of our competitors hire an outside firm to negotiate their deal.

For us, our legal, analytics and PBM strategy teams negotiate our own deal. And while many coalitions offer a market check, few are growing at the same rate that we are, which means that while they may be renegotiating their deal each year, they’re not doing so with the same amount of leverage that we are. I was actually asked recently what differentiated us from a smaller coalition competitor.

And one part of my answer was that, you know, we’ve grown at 200 to 250 million each year over the past four years. And in this particular case, that was like adding the entirety of this other coalition in each of those years. So when you think about structure and who’s going to provide the most benefit in the long term, I can assure you that this other coalition isn’t going to keep up.

Transparency is a big differentiator as well. Many of the largest coalitions in the marketplace refuse to even allow their deal to be evaluated by a third party. And I’m not sure why an employer would allow a coalition to evaluate its own deal or even handpick who got to evaluate the deal.

In a couple instances, the entity that is allowed to evaluate the deal benefits financially if the client ends up joining the coalition. And in almost every area of society, we call that a conflict of interest. So that’s a differentiator.

The staffing at the coalitions is also very different. So here at Employers Health, we have an account management team that works with our clients in tandem with the consultant and the PBM account teams. We have clinical pharmacists who design custom strategies and analyze our data and make unbiased recommendations.

Most other coalitions don’t provide clients the level of support we do, and our team really is a differentiator out in the marketplace. So I guess to summarize, our structure makes our mission different, so why we even exist? Our growth allows us to consistently stay ahead of the marketplace.

We are consultant agnostic. We don’t hide our deal from independent evaluations, and our team ensures a better experience for our clients, their consultants, and then their planned participants.

Emily Clevenger (11:39)

Thanks. So why is there so much consolidation in the marketplace amongst PBMs, medical vendors, consulting firms, and what does it mean for employers?

Mike Stull (11:49)

Yeah, I think I touched a little bit on this before, that there’s value by getting bigger in this industry, and so we see a rush by others to get bigger. I wrote down a stat I heard the other day, and it was that the largest 60 pharmaceutical manufacturers in the early 2000s merged to only 10 by around 2015. So over a 10-to-15-year span, 60 largest pharmaceutical manufacturers down to 10.

There’s also only four generic drug manufacturers that accounted for more than half of the generic drug volume. So you have a huge shift through consolidation in terms of the leverage on the supply side of the equation and get ready for more. I just read a new article that the largest pharma companies are estimated to end 2022 with more than $500 billion in cash and up to $1.7 trillion in available capital to do more deals. So from a mergers and acquisitions perspective, the supply side is getting smaller, or I should say getting bigger by getting smaller. So that’s where we’re starting from at the top of the supply chain, and so what would you expect to occur as you made your way down? Of course, consolidation is going to occur.

How else do you rival the negotiating power at the top? And what happens is it ends up trickling down from one player to the next. So, for employers, it means that they better be working together to get the most value they can from the PBM, and that doesn’t mean just at one particular point in time when they release an RFP, but how do they tap into a structure that allows them to continuously maintain their contractual and negotiating leverage in the marketplace across time.

In terms of what it means as well, I think less flexibility, higher costs. We’ll see on the PBM front. I think many of the smaller PBMs have partnered with one of the big PBMs to get better rebates and discounts, and so if they can close the gap from a pricing perspective, they do have an opportunity to provide some additional solutions that could benefit particular clients where the big PBMs either administratively can’t go or won’t go.

Emily Clevenger (14:23)

So we’ve also received a number of questions about legislation in general, so acts that are hindering programs like CVS’s PrudentRx True Accumulation and Optum’s CoPayCard Accumulator Adjustment Program or rules like the Transparency and Coverage Act. So what can clients do to stay on top of any changes while also making sure they’re keeping their plan design competitive and compliant?

Mike Stull (14:47)

Yeah, I think we could spend all day on this one, and so here’s what I’ll say in terms of my observation of what’s happening in the states. There’s little to any state legislation that I’ve seen that’s going to benefit the majority of the people within those states. If you look at who’s lobbying for these new legislation or for this new legislation, it’s independent pharmacy associations and patient advocacy groups for the most part, and those patient advocacy groups are mainly funded by pharmaceutical manufacturers.

So, in many cases, the new rule simply take a dollar out of one pocket and they put it in the other pocket, and at the same time, the entity that had the dollar taken out of its pocket is looking for another pocket to reach into and pull that dollar back out. So from an employer perspective, if in this case, if we take that example and we say that it’s taking a dollar out of the PBM’s pocket, it’s putting it in the retail pharmacy’s pocket. At the same time, the PBM is going to be reaching into Plain Sponsor’s pocket, so that might be the state government.

It might be employers in that state, and maybe they won’t take the full dollar, but they’re going to be taking something, and so employers then will pass along the cost in the form of higher premiums to their employees. What none of the news stories will tell you is that the independent pharmacies use PSAOs, so they’re again middlemen, PSAOs to negotiate their reimbursement contracts with PBMs. In most cases, those PSAOs are run by some of the largest wholesalers who also serve as the GPO to help the pharmacies buy their supplies of medications. So it’s the same company, and by the way, these are some of the largest corporations in America that are running these.

It’s the same company that helps the pharmacy buy its supply, and then also helps them set their reimbursement with PBMs. So if I’m a pharmacy that isn’t able to generate margin on my scripts, I know who I’m looking for, or I know who I’m looking to for an answer, and it’s not state legislators. For the patient advocacy groups, they want laws that do things like cap copays and allow patients to get their medications wherever they choose, regardless of cost, and those might be worthwhile goals, but at the end of the day, somebody else is paying the bill. And so, we have to be careful, and we know who’s paying the rest of the bill, and it’s our employers and their participants.

So, I think in a lot of cases, there are legitimate issues. They need to be addressed, but nothing or very little of what I’ve seen will make any positive improvements, and there are certainly going to be unintended consequences. So enough with this one.

We’re working with the PBMs and consultants to make sure that our clients understand any state laws and are in compliance. Some of these new laws are definitely going to have to work their way through the courts to determine applicability to ERISA governed plans or for ERISA governed plans.

Emily Clevenger (18:27)

Great. Thanks, Mike. So we have a lot more great questions that we want to cover in the future, so stay tuned for a future episode.

Mike Stull (18:35)

Great. Thank you, Emily. We hope you found this new feature useful.

If you have questions, you’d like answered on a future Ask Mike Anything episode, please do submit them on the Employers Health podcast landing page or email them to [email protected].

Before I share the keyword, I’d like to congratulate episode 28’s gift card winner, Sandra Elka of Waterford School District. So Sandra will receive a $50 gift card for submitting the keyword biosimilar.

With that, it’s time for today’s keyword. This episode’s keyword is question. If you’d like to be considered to win next month’s gift card, be sure to submit the keyword on the Employers Health podcast page at employershealthco.com/hrbenecast. Again, this month’s keyword is question. You can submit the keyword now to be entered in to win a $50 gift card.

Finally, I want to thank our sponsors for helping to not only make this podcast possible, but for supporting us in providing great employee benefits related content throughout the year.

Again, don’t forget to submit your questions by completing the field on the landing page or clicking the link titled submit your questions here. And then be sure to subscribe to HR Benecast to be notified when the latest episode is out and so you can hear the answers to your benefits-related questions. There’s always something new here at Employers Health, so be sure to follow us on our social media accounts, LinkedIn and Twitter to stay up to date.

The latest issue of EH Connect, our tri-annual magazine, is in the mail, so be sure to watch out for it. The Employers Health team covered some great topics in this one, so be sure to check it out to learn more about obesity drug coverage, the results of our 2022 market check, the impact of COVID on the pharmacy industry, and more.

That will conclude this month’s episode.

Thank you for the insightful questions and thank you for taking the time to listen for your continued membership, participation, and interest in Employers Health. We hope you have a happy holiday season, and we look forward to connecting in the year.

Be well, and we’ll see you soon.