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"What is a PBM and What Role Can
PBMs Play in a Reformed Medicare Program?"
May 22, 2001
AIM and the Progressive Policy Institute (PPI) co-sponsored a May 22nd briefing on pharmacy benefit managers (PBMs) and how private sector pharmacy benefit management tools could be applied in a new Medicare prescription drug program. Speakers included Mr. Richard Scardina, Senior Vice President of Operations Management for Caremark Prescription Service and current Chairman of the Pharmaceutical Care Management Association (PCMA) and Dr. Michael J. O'Grady, Senior Research Director, Center for Health Affairs, Project HOPE. Mr. Jeff Lemieux, Senior Economist, represented the Progressive Policy Institute. Ms. Tracey Moorhead, AIM Director, provided opening remarks and an overview of AIM's principles for comprehensive Medicare modernization including AIM's support for an integrated prescription drug benefit.
Mr. Scardina described the PBM industry and
stated that PBMs service 160 million individuals, fill over 2 billion prescriptions annually, and that 12 percent of all prescriptions nationwide are filled through mail service pharmacies managed by
PBMs. Mr. Scardina described both the retail and mail order processes for filling prescriptions and noted that PBMs provide comprehensive, patient-centered services to greatly improve patient
safety and program cost efficiency.
These services include checking drug interactions and alerting prescribing physicians to drug dosage concerns, regimen compliance concerns, and drug substitution availability. Mr. Scardina noted these services are particularly helpful to senior citizens who may need extra assistance in understanding their medications. Mr. Scardina defined a drug formulary as a continually updated list of medications and related information and outlined Caremark's drug evaluation and formulary development process. Mr. Scardina also described the cost benefits of drug substitution, tiered formularies and co-payment levels. He stressed that PBMs cannot substitute drugs without prior approval from the prescribing physician. Finally, Mr. Scardina noted that Caremark's benefit management strategies had resulted in an average 26 percent decrease in per person costs based on a sample of over 20,000 retirees.
Dr. O'Grady outlined a PBM's ability to
negotiate discounts and rebates from pharmaceutical manufacturers and to use cost control measures to manage a drug benefit.
He noted that PBMs utilize a cost-sharing design through co-payments and deductibles in fee-for-service plans while focusing on physician prescribing practices in managed care programs. Dr. O'Grady explained the concept of financial risk sharing for PBMs and noted that PBMs are not similar to insurance companies which assume the risk of financial loss in return for a fixed annual payment from individual policy holders. Instead, companies or employers utilizing PBMs to manage employee prescription drug programs hold the vast majority of risk of financial loss. Dr. O'Grady proposed for a Medicare prescription drug benefit a "risk corridor" concept which would increase or decrease a PBM's risk of financial loss based on performance in reducing costs. Dr. O'Grady also discussed the option of a single PBM per geographic area versus multiple PBMs competing for beneficiaries on price and quality of benefits. He noted that competing PBMs would be a new market option. Finally, Dr. O'Grady noted that policy makers should not have unreasonable expectations for PBMs regarding the amount of cost savings or prescribing habits of physicians. Further, policy makers should be careful to ensure flexibility in the design of a Medicare drug benefit so as not to restrict the use of cost saving tools or beneficiary access to new technologies.
In response to a question about negotiated
rebates with pharmaceutical manufacturers, Mr. Scardina said that a PBM who retained new contracts to manage drug benefits would not necessarily be able to negotiate additional rebates based on volume.
In response to a question regarding single
versus competing PBMs, Mr. Scardina stated his preference for multiple, competing PBMs as a way to ensure quality and appropriate benefit management.
In response to a question about expected
savings, Mr. Scardina stated that Caremark had achieved average savings of 26 percent per senior citizen beneficiary through drug benefit management tools.
Dr. O'Grady stated his opinion that a Medicare prescription drug benefit utilizing PBMs and other private sector management tools would be unlikely to achieve cost savings similar to those achieved by Caremark. Dr. O'Grady stated that the market would not be able to absorb discounts and rebates in all population sectors and that, as a result, discounts and rebates for existing private sector programs would be reduced to account for the additional discounts and rebates offered for a Medicare drug program.
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