Pharmacy Benefit Management Concepts: Processes and Strategies

To help stakeholders understand the key components of their pharmacy benefit plans, National CooperativeRx has developed a three-part blog series where we explore pharmacy benefit management concepts at a high level and answer frequently asked questions. In the first part of our series, we examined costs and access. In this second part of our series, we delve into the inner workings of PBMs, answering questions about what happens after a patient fills a prescription, how benefits are effectively managed, and the strategic approaches PBMs utilize.

How Do Pharmacies Get Paid from Pharmacy Benefit Plans?

We previously explained the process by which pharmacy benefit managers (PBMs) negotiate with drug manufacturers and pharmacies to offer insurers or organizations prescription drug plans. These plans feature formularies (lists of preferred drugs), cost-sharing structures, and pharmacy networks. When plan participants utilize pharmacies in-network with their PBM, the pharmacy provides the patient with their prescribed drug at the negotiated discounted rate. In return for dispensing those drugs to patients, the pharmacy seeks reimbursement from the PBM. They do this by creating claims, or requests for payment. These claims detail patient information, specific drugs dispensed, quantity, and associated costs.

Claims are reviewed and processed by the PBM, verifying accuracy, eligibility, formulary restrictions, and patient-specific details (claims adjudication). This determines whether the PBM will approve or deny payment to pharmacies and calculates the patient’s cost share. An automated system typically completes this process for efficiency.

If claims are incomplete, do not adhere to contract terms, or are not compliant with regulatory requirements, they may be denied or delayed. The pharmacy or provider may need to correct and resubmit the claim with the necessary information or documentation to ensure it meets the required standards and criteria for approval.

What Strategies Do Pharmacy Benefit Managers Have for Managing Utilization?

Proper claims processing and adherence to regulations are crucial to prevent unnecessary costs and/or dangerous health outcomes. PBMs employ utilization management strategies to further ensure prescription drugs and services are used appropriately and cost-effectively. Prior authorizations, step therapy, and quantity limits are common examples of these strategies.

• Prior Authorizations: A review to ensure a prescription drug or procedure is used for the right patient at the right time.
• Step Therapy: Patients begin with preferred prescription drugs, and if initial treatment does not meet needs or is ineffective, they may progress to alternatives.
• Quantity Limits: Set limits on the number of the same prescription a patient can fill during a specific timeframe.

PBMs may offer additional clinical programs and initiatives aimed at improving patient outcomes and minimizing unnecessary spend. Initiatives may provide enhanced claims oversight, monitoring adherence and identifying potential complications. Additional formulary management strategies may also be implemented to ensure the most cost-effective prescription drugs are being preferred. It is also common for programs and initiatives to focus on the management of specialty medications (complex and often costly), which often involve prior authorizations, step therapy, and quantity limits as described above.

Additional oversight can also help combat pharmacy benefit fraud, waste, and abuse. Clinical programs or initiatives could potentially identify adverse drug interactions, prevent patients from obtaining unsafe quantities of prescriptions, and detect illegal agreements between providers and pharmacies, among other concerns. Overall, by implementing a combination of utilization management strategies and clinical programs, PBMs aim to achieve a balance between cost-effectiveness, clinical effectiveness, and patient safety.

Utilization management and clinical program strategies vary by PBM and may be optional. PBMs may also enlist third-party entities to offer these strategies to their clients.

Do Pharmacy Benefit Managers Charge for their Strategies?

PBMs’ utilization management strategies and clinical programs can offer valuable benefits, but these services can come with associated costs in the form of fees. While some fees relate to these programs, PBMs may also charge additional fees for other services, including, but not limited to, the examples listed below:

• Administrative fees: Fees for processing claims and other administrative tasks.
• Dispensing fees: Fees paid to pharmacies for dispensing medications.
• Pass-through fees: Fees associated with the PBM passing on rebates received from drug manufacturers to plan sponsors (employers).

These fees are typically disclosed in PBM contracts with employer groups. However, the impact of these fees on overall pharmacy benefit costs may not always be fully understood or considered.

Conclusion

PBM processes and management strategies further shape pharmacy benefit plans offered to employer groups. By understanding these elements, stakeholders can further optimize their pharmacy benefits and educate their employees.

In the final part of our series, we will explore oversight of PBM performance and PBM support, covering performance guarantees, audits, reporting, customer service, and education.

Check out our pharmacy benefit glossary for more definitions regarding pharmacy benefits.