Pharmaceutical Pricing Practices, Utilization and Costs - Meeting Summary. 1. Cost Control for Prescription Drug Programs: Pharmacy Benefit Manager (PBM) Efforts, Effects, and Implications--David H. Kreling, Ph.D., R.Ph.


1. Cost Control for Prescription Drug Programs: Pharmacy Benefit Manager (PBM) Efforts, Effects, and Implications--David H. Kreling, Ph.D., R.Ph.

Dr. Kreling noted that PBMs use two general types of strategies to control the costs of their customers' prescription drug programs: (1) pricing-focused cost-control strategies; and (2) utilization-focused cost-control strategies. Similar strategies are also used by HMOs, health plans, State governments, and other entities.

Pricing-focused cost-control strategies are aimed at obtaining rebates or discounts on prescription drugs from drug manufacturers or pharmacies:

  • Discounts from pharmacies. PBMs may "negotiate" payments or reimbursements to pharmacies for prescription ingredient costs and/or dispensing fees.
  • Rebates from brand-name drug manufacturers. PBMs' rebates from brand-name drug manufacturers typically have some purchaser volume or market share requirements associated with them.
  • Mail service pharmacies. PBMs may encourage or require consumers to use mail service pharmacies for long-term prescription drug therapy for chronic illnesses.
  • Utilization-focused cost-control strategies focus on consumers, prescribers, or pharmacies in an effort to influence which drugs and/or how many drugs are used:
  • Drug formulary. A formulary is a list of drugs approved for use/reimbursement. A formulary may be a closed formulary that allows no exceptions; a partially closed formulary that allows exceptions with prior authorization or increased cost-sharing; or an open formulary that includes all drugs.
  • Financial incentives to use generics. PBMs may give financial incentives to patients, pharmacists, or prescribers to use generic prescription drugs rather than brand-name drugs.
  • Drug utilization review. PBMs may review drug utilization, either retrospectively or concurrent with the prescription-dispensing process, to identify and intervene to correct utilization problems.
  • Disease management programs. PBMs may implement programs intended to maximize the effectiveness of drug therapy and outcomes for specific medical conditions, as well as to minimize the total treatment costs for those conditions.
  • Patient cost-sharing. PBMs may require patients to share the costs of prescription drugs via copayments (paying a fixed cost per prescription) or coinsurance (sharing a direct proportion of costs). Coinsurance can sensitize consumers to differences in the costs of the drugs they use, conceivably driving drug use to lower cost (generic or discounted) drugs but may reduce consumers' access to high-cost drugs. Currently, copayments are far more common than coinsurance.

What limited research there is about the effectiveness of various types of pricing-focused and utilization-focused cost-control strategies suggests that none of the approaches is without limitations. Because of the complexity of the reasons for drug use and increasing expenditures, most of the strategies have unintended effects that may end up compromising cost-control efforts.