Issues in Drug Benefit Management

Health Plans Lose Ground to PBM Carve-Outs

From Drug Benefit Trends
Posted 03/17/2004

By Debi Reissman, PharmD


For employers, the decision of whether to carve out the pharmacy benefit to a PBM for all employees or integrate the pharmacy benefit with the medical benefits of each employee's health plan is an ongoing issue. The decision is a hard one, especially when the employer is already contracted with multiple health plans. The current trend, though, seems to favor carving out the pharmacy benefit.

However, integrating the pharmacy benefit with the medical benefit should result in better management across disease states and less conflict over silo management issues since the pharmacy and medical benefits are managed by the same entity. In addition, the annual costs to the employer are capped under a premium structure so the employer is not at risk for cost overruns.

On the other hand, self-insuring and carving out the prescription drug benefit ensures that all employees have the same benefit design and formulary structure so that there are no complaints about copayment levels being higher for different employees taking the same drug or employees not being able to get a particular drug under a specific health plan. However, there are a number of pitfalls and potential risks. The employer is at risk for the costs and may find prescription benefit trends rates climbing at a much higher rate than anticipated. In addition, certain areas of therapy, such as self-administered injectables, may be left out inadvertently, with neither the medical nor pharmacy benefits providing coverage. Conversely, these agents can end up being paid for twice, once under the medical premium and again through pharmacy claims.

Despite the risks, the trend over the past several years has been for employers to carve out the prescription drug benefit. This trend may be accelerating, with some health plans now reporting as few as 80% of their members having both medical and pharmacy benefits managed through the plan, whereas in the 1990s health plans reported more than 90% of enrollees having prescription benefits integrated with the medical plan.

I believe the pharmacy and medical benefits should be managed together rather than be managed by separate companies because of the potential for better coordination of health care services and in order to evaluate cost issues from a systems perspective. It appears, however, that managed care has not done a good job of convincing employers that keeping the prescription drug benefit integrated is really of value. Few, if any, health plans routinely include a pharmacist in their sales presentations touting the benefits of an integrated prescription program or explaining how the drug utilization review programs and/or disease management programs in place will improve employee health. Even more rare seems to be data reported from the health plan back to the employer on how having both pharmacy and medical coverage managed together has improved health outcomes and reduced overall health care costs for their employees.

In the meantime, the PBM industry is doing an excellent job of convincing employers of the benefits of carving out the prescription drug benefit, including standardizing the benefit across all employees, producing reports that show cost savings from prescriptions that were changed or not filled, implementing customized rather than standard benefit designs, and perhaps most important, highlighting the ability to bypass state-mandated health plan benefits or processes by self-insuring because of Employee Retirement Income Security Act (ERISA) exemptions.

Several states have imposed laws or regulations on the provision of the health plan pharmacy benefit that may actually expand the level of coverage beyond what an employer intends to pay for and the health plan wants to provide. These state requirements may not need to be followed under ERISA exemptions if an employer chooses to self-insure and provide employee benefits directly. These requirements may include limits on how often products can be removed from formulary; mandated coverage of certain drug classes such as dietary supplements, mental health, and family planning; limits on copayment levels; and the inability to remove prescription drug classes from the benefit when some agents within the class become available OTC. These types of provisions, when legislated or otherwise mandated, can make the health plan's prescription drug benefit inflexible, more difficult to manage from a cost perspective, and noncompetitive compared with what can be offered through a PBM on a self-insured basis.

Faced again with double-digit increases in health care costs and premiums, employers want solutions. As health plans become further burdened with legislative and regulatory mandates, PBMs seem to be stepping up to the plate to offer solutions to the problem of rising prescription drug costs. Unless health plans can provide more effective cost control and do a better job of convincing employers of the advantages of an integrated program, managed care pharmacists working for health plans may start to find they have fewer and fewer members with pharmacy benefit coverage to manage. It also means that the benefits of integrated care and the real value of the prescription drug benefit and disease management services as far as improving care and costs on the medical side will not be realized.

Dr Reissman is president of Rxperts, Inc, a managed care consulting firm in Irvine, Calif. You can visit the Rxperts Web site at

Drug Benefit Trends 16(1):15, 18, 2004. © 2004 Cliggott Publishing, Division of CMP Healthcare Media

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