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The price of the pill is so last century

For every complex problem there is an answer that is clear, simple, and wrong.

Thank you, HL Mencken, for describing the problem inherent in picking a workers’ comp PBM based on how much they charge for drugs.  

It is really easy to compare bids from PBMs based solely on how much they’ll charge for brands and generics.

It is also wrong.

While workers comp insurers have (mostly) figured out that the price of the pill is a lousy way to decide on a PBM, every now and then I get a call from a payer who’s just been offered a GREAT price from a PBM, and is either a) gleeful that they have been so smart and such a cunning negotiator; or b) panicked because their boss wants to change PBMs and the vendor manager knows it’s going to blow up.

Okay, let’s walk thru this.

The price of the pill is important, but it is only ONE part of the equation. Which is as follows:

Price per pill x number of pills per script x percentage of scripts processed in the PBM’s network.

Price per pill is determined by the discount below AWP, brand:generic mix, and, most importantly, by the type of pills dispensed.  If a PBM does a crappy job managing the clinical aspects of the pharmacy program, you’re going to pay for far too many pills, and for the wrong kind of pills. It’s safe to say you’ll be paying for lots of opioids, Soma, and other highly-questionable-if-not-downright-harmful-drugs.

But hey, at least you’re getting them for cheap!

Lets say you don’t care about the kind and volume of pills, you just want the deep discount.  Even then, you will likely find the cheap PBM delivers crappy results.  Here’s why.

PBMs that pitch really low per-pill pricing are likely using a group health-contracted pharmacy network, which leads to problems with paper bills and administrative hassles for adjusters.  Regardless, the network penetration for the cheapo PBMs tends to be pretty low compared to the WC PBMs.  There’s a bunch of reasons for that which I won’t get in to here.

Suffice it to say that while you may get a great price on 40% of your scripts, you’ll be paying flat-out retail on the other 60%.

In contrast, WC PBMs typically deliver penetration in the 80+% range.

So, even if their discount isn’t nearly as low as the cheapo ones, the effective price will likely be lower – because you get that discount on twice as many scripts.  

What does this mean for you?

Look at the price, sure, but look at penetration.  And, of course, clinical programs.

Because the greatest penetration in the world is a big problem if its all opioids and Soma.

6 thoughts on “The price of the pill is so last century”

  1. Joe – very good points. Here is another thought: the phrase Network Penetration is beginning to be used in a much different way than in the past. Based on your blog I think you and I are in agreement that this number represents the on-line utilization of a PBM by a contracted network pharmacy – ensuring that the client receives the benefit of not only contracted price, but also clinical oversight by the PBM. Recently I have observed others in the PBM industry use this phrase to represent how often a prescription is filled by a network pharmacy regardless of how that prescription is processed: on-line, paper bill or third party biller. Obviously this will lead to a very high utilization number but does not offer the protection you outlined above. Perhaps the phrase Network Utiliation should be retired and replaced with On-line Processing? Either that or every RFP should require a dictionary of terms.

  2. I concur with Phil Walls. I conduct a good many pharmacy analyses with pretty much all of the PBMs. Without exception, they are including aggregators and direct contract providers with EDI to the PBM, but not necessarily including prospective clinical management. We now ask PBM’s to address network penetration by direct (PBM pharmacy network fills) and indirect 3rd parties connectivity.

  3. Joe…I agree with your comments. Choosing a PBM on unit price alone is a recipe for disaster. Most savvy payers now know to evaluate a PBM’s ability to manage script volume through clinical drug utilization management programs. But payers need to make sure they are buying clinical programs that produce results. Just because a PBM offers up a clinical program doesn’t mean it produces the results you need. Payers need to ask for proof of drug spend impact and improved outcomes directly related to clinical programs. Having a clinical pharmacist on board with the payer can help them ask the right questions.

  4. You touch briefly on the biggest problem in health care, which is true regardless of whether it is comp or group health: The fact that utilization of services is all not infrequently worthless or even harmful. From my days as a medical intern in 1978, I saw waste that I anecdotally felt was around 25% or more – meaning that at least a quarter of health interventions are without value. Terminal care was one such area, where quality and quantity of life was not helped, despite massive spends on those whose systems are failing. Far more compassionate would be a hospice approach, which fortunately is more the norm.

    Recent studies have supported my anecdotal observations from years past.

    If as a thought experiment, we gave patients the money for the care they propose to obtain, how many would fill that script, get that surgery, or have another chiro visit – if they could use the cash in some other way? This is not going to happen but it underscores the challenge. And some of these same people would choose to not immunize their kids or take meds that are truly needed. While I support health reform, one of the major gaps inherent in the current and future system is the disconnect between the payer and the patient, and the subsequent lack of incentive to behave in an economically rational set of behaviors and consumption. Thus the need for the heavy hand of regulation, since patients have given up their control to others in the form of employers, carriers and government.

    Rather than focusing on discounts for services, if payers would find a way to just say no to services that don’t meet evidence-based criteria, including most narcotic scripts for chronic pain and many other interventions, how much ahead would society and patients be?

    Sometimes doctors and patients don’t know what is best, and the economic drivers for spending and consumption overtake prudent and proper care. The best discount is 100%, from zero use.

  5. Joe, the forward leaning approach in decision making here of course in choosing a PBM vendor is to recognize PBM spend as one component of a truly encompassing, holistic outcomes based equation (which I recognize was not your goal in this posting). So one would have to include all the elements you mentioned, and let’s throw in mail order conversion for good measure, but also PBM related impacts on other non-pharma utilization (with related clinical results) on both medical and disability spend – the question to answer is what’s a PBM’s synergistic contribution to the total cost of ownership to a book of claims. With that view, the least expensive PBM may not be the most cost effective vendor for improving clinical and financial outcomes. I’d add that while I agree that evidenced based medicine is important, in the workers comp world, the art and science of claims management strategy on an individual claim may be good reason to exceed what the evidence based approaches in isolation alone tells you without detriment to the injured worker.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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