Can Pharmacy Coalition Carve-Outs Help Reduce Your Health Plan Spending?

MAY 7, 2024

Despite recent congressional efforts to increase transparency and limit drug pricing, pharmacy spending continues to rise at an unprecedented rate, accelerated by utilization, drug prices, and emerging therapies. Employers looking to limit the impact of rising prescription costs on their premiums may consider “carving out” pharmacy benefits from their existing plan and contracting directly with a pharmacy benefits manager (PBM). However, direct PBM contracts often do not provide the same value for a mid-sized employer as they do for larger organizations. Therefore, some businesses may consider pharmacy coalitions to be a cost-effective alternative.

This carve-out solution leverages the buying power of multiple employers to negotiate better pricing and rebates with a PBM. Even for larger self-funded groups, introducing a pharmacy coalition into the conversation with a PBM can help create competitive pricing and positive results for the employer.

Even though these arrangements are designed to boost an individual employer’s negotiating power, they may not always result in actual savings. Much of it will depend on whether the coalition is owned by a brokerage or independently managed. Here are several considerations to be aware of before engaging with a broker-owned pharmacy coalition:

• PBM Relationship – Many broker-owned coalitions serve as intermediaries, funneling clients to the PBM. While convenient, PBMs are typically incentivized by rebates and other sources of revenue to keep prescription claims costs high, as discussed in our previous article. Brokers contracted to receive a portion of the revenue from the PBM also have no real incentive to help employers control pharmacy spending.
• Analytics and Reporting – Some coalitions provide customized, data-driven reporting to help employers identify cost variances or measure the performance of the PBM contract. However, these tools may only be provided to the largest groups in the coalition, leaving standardized insight reporting for smaller organizations. Without employer-specific data, organizations can’t make informed decisions about the pharmacy plan or explore other options.
• Data Ownership – Depending on contract terms, some broker-owned pharmacy coalitions take ownership of client data. This means employers cannot access usage reports or other information critical to effective plan management, and may be prohibited from bringing in an independent auditor to ensure PBM performance aligns with expectations outlined in the contract.
• Connection Fees – Some broker-owned coalitions may require employer members to pay an annual access fee, ranging from a few thousand dollars to $100,000 or more, depending on the group size. This is often in addition to any agreed-upon fees between the coalition and the PBM that may also apply to the employer.
• Contractual Guarantees – Performance expectations laid out in the PBM contract can be used to evaluate plan performance and hold the PBM accountable if they are not meeting those agreed-upon metrics. However, contractual guarantees for a pharmacy coalition are typically at the aggregate level, which may or may not benefit individual employer members. Without individual contractual guarantees, employers do not have a way to ensure plan performance accountability.

Unfortunately, many carve-out options were built to create profitability for industry stakeholders — including certain brokers, PBMs, and carriers — and do not adequately address employers’ real cost concerns and other pharmacy challenges. The key to controlling pharmacy results is understanding and objectively evaluating all the available options.