Program generates savings through competitive bidding

Traditional approaches have failed to contain rising drug costs, making pharmacy expense a major thorn in the side of employers. But now there’s a proven program that cracks the code of mysterious pharmacy benefit manager (PBM) profit margins and uses that information—through negotiation and competitive bidding—to enable employers to dramatically reduce their pharmacy benefit expenses.

Employers challenged by rising costs

It's no secret that health care costs are skyrocketing. But consider this stunning projection from a 2018 Pharmacy Benefit Management Institute (PBMI) report: In the next 15 years, the cost of providing health care is expected to exceed wages.

For 2018, total budgeted health care costs per employee at U.S. businesses (including employer and employee premiums and employee out-of-pocket expenses) were expected to exceed $15,000, a 5.5% increase over 2017 and a five-year rise of about 27%, according to an Aon study.

The latest research reveals spending on prescription drugs represents about 15% of overall health care spending, and that figure is only projected to grow. The PBMI says the annual rate of growth of year-over-year spending on drugs through 2021 is expected be in the 10% range, more than double the rate in 2016.

"The end of the generic wave, new and increased use of existing specialty drugs, increased brand drug prices, and the incidence and prevalence of chronic disease among Americans all contribute" to the rising trend, PBMI reports.

A particularly alarming statistic: Specialty medications—used by only 1% to 2% of Americans—will account for half of total U.S. drug spend by 2020.

Traditional cost-cutting strategies—and why they've failed

Employers have been battling rising pharmacy benefit costs for years, albeit with limited success. Here are some traditional tactics and why, ultimately, they don’t work very well:

  • Limiting access to certain classes of expensive drugs. According to a recent PBMI report, more than half of employers had formulary exclusions for specialty drugs, and more than one-third were considering implementing or increasing use of such exclusions . The problem with that strategy is if employers don’t cover such drugs, employees who are then unable to access them are likely to have more medical issues. An employer might save on drug costs but pay more in medical expenses.
  • Raising co-pays. This strategy fails for the same reason. If you raise the co-pay, an employee might not be able to afford a medicine he or she needs to stay healthy, ultimately resulting in higher medical expenses.
  • Joining consortiums to leverage volume discounts. About 2 out of 10 employers are members of a coalition or group purchasing organization, according to PBMI . One drawback is that a consortium typically requires members to choose from a limited number of PBMs, meaning the employer might have to change its PBM. Also, when you join a consortium, data rights for audits or other procurement exercises are lost, client contracts are based off a template with limited negotiation and, finally, most coalitions charge membership fees to the plan or receive undisclosed fees from the PBMs themselves. Consortiums typically are able to leverage their buying power to reduce members’ costs, although not nearly as much as the approach we'll discuss below.

MSW Pharmacy Program—a new solution

Traditional approaches typically fail because they don’t attack the core problem of rising drug costs: the inability to know PBMs' true profit margin centers. That’s where the Pharmacy Program offered by McGriff, Seibels & Williams (MSW), the PBM brokerage and consulting arm of BB&T, is a game changer.

The MSW Pharmacy Program claims adjudication platform reprices 100% of the claims and counters any tactics a PBM may use to its underwriting advantage. Unfavorable drug classification or other contract terms are nullified, ensuring the most accurate pricing analysis in the marketplace. That information is then used in three ways to lower pharmacy costs for employers:

  • Enhance negotiating leverage. With pricing tactics identified and mitigated, MSW can more effectively negotiate with PBMs on behalf of an employer to maximize ingredient cost discounts and rebates and therefore lower the plan cost.
  • Coordinate and execute online bidding among competing PBMs. Another option, sometimes more appropriate for larger employers, is the program’s online request for proposal (RFP) process. PBMs submit to multiple rounds of bidding to optimize drug pricing and terms. PBMs expect to retain the vast majority of their existing clients, so just the prospect of an online bidding process can enhance negotiations and lead an incumbent PBM to reduce pricing more than it might otherwise. Indeed, with MSW’S platform, 66% of clients remain with their incumbent PBM, proving that better contract and pricing are available in the marketplace.
  • Ongoing pharmacy benefit contract oversight. In addition, using proprietary technology the program provides ongoing PBM contract oversight. Its review of 100% of the company's pharmacy benefit claims is designed to ensure the selected PBM is accurately billing based on the terms and prices outlined in the contract. The audit finds inconsistencies with the contract and provides value by correcting them in real time.

With the aid of these program tools, employers typically reduce their pharmacy benefit costs by between 12% and 27% in a process that’s invisible to employees and creates little or no disruption.

See below for examples of employers across various industries that achieved savings in this range.

MSW Pharmacy Program results

(Actual data for anonymous employers)

  Industry Employees/members Winning PBM bidder 3-year estimated savings % savings
Employer #1 Technology 2,500/4,300 Anthem $3.85 mm 22.4%
Employer #2 Defense 32,500/54,000 CVS $46.4 mm 18.8%
Employer #3 Manufacturing 1,400/2,400 National CooperativeRx $2.55 mm 16.8%
Employer #4 Retail 800/1,285 OptumRx $499,500 13.8%
Employer #5 Energy 877/2,043 Prime Therapeutics $1.43 mm 14.6%


Are you a good candidate?

Just about any employer that provides health care on a self-funded basis is a good candidate for the MSW Pharmacy Program. To further confirm the program might be a good fit for your company as a way to maximize pharmacy benefit cost savings, ask these questions:

  • Are you concerned about the impact of rising drug costs on your benefit plan?
  • Do you wonder if you are getting truly competitive pricing from your incumbent PBM?
  • Do you have at least 200 employees?
  • Is your PBM contract ending soon (i.e., at the end of the current year) or does it allow for a check to test the market?
  • Have you found running an RFP for PBMs to be operationally challenging?

If you answered "yes" to these questions, then you may want reach out to your Relationship Manager to learn more or to schedule a meeting with an MSW representative.

In fact, you might want to consider utilizing our pricing algorithm for a no-cost gauge of your current drug pricing. We'll compare your current pricing against prenegotiated pricing we've achieved with top PBMs using our pricing algorithm. Give us your last year's pharmacy claims data in an anonymous file, the current PBM contract if available, and other information about plan design and rebates you earned. We'll compare that against deals we’ve negotiated and provide a report assessing your current pricing. The process is painless, takes about 48 hours and doesn't cost anything.

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  • 1

    2018 Trends in Specialty Drug Benefits, a Pharmacy Benefit Management Institute report.

  • 2

    “U.S. Workers Poised to Spend an Average of $5,200 in Health Care Costs in 2018,” an Aug. 23, 2017, press release from Aon.

  • 3

    “Spending on Prescription Drugs in the US: Where Does All the Money Go?” a Health Affairs blog, July 31, 2018.

  • 4

    2017 Trends in Drug Benefit Design, a Pharmacy Benefit Management Institute report.

  • 5

    2018 Trends in Specialty Drug Benefits, a Pharmacy Benefit Management Institute report.

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