Unraveling PBM Complexity: Revealing Information Asymmetry & Hidden Fees

Navigating the healthcare landscape can often feel like venturing through a maze with hidden paths and unexpected turns– especially as an employer. In this post, we aim to equip you with some of the insights and tools needed to discern the realities of Pharmacy Benefit Manager practices, ensuring that your decisions are informed and your healthcare management is as cost-efficient and (truly) transparent as possible.

Information Asymmetry Defined 

As middlemen who don’t always need to report their dealings to a higher entity, PBMs function with a level of control and knowledge that creates a significant imbalance known as information asymmetry. This imbalance arises when PBMs, wielding their extensive and specialized understanding of pharmaceutical pricing, rebates, and healthcare regulations, maintain a greater insight into the workings of drug costs and benefits management than the employers or health plans they’re supposed to serve. 

This disparity would be fine if PBMs didn’t use it to their own financial advantage, but they do. 

Detecting information asymmetry requires a keen eye and a proactive approach. Employers may notice red flags such as contracts filled with confusing jargon and clauses, or they may get vague replies when questioning various cost components. Another tell-tale sign is reluctance from the PBM to provide detailed breakdowns of fees, rebates, and drug pricing strategies. 

Let’s say, for example, you’re considering a PBM with a low or non-existent administrative fee. It’s important to approach the offer with a healthy dose of skepticism. While the prospect of saving on administrative costs might seem attractive, it often signals the presence of hidden fees or cost shifts elsewhere.

The Illusion of Transparency: Hidden PBM Revenue Streams to Look for 

One of the most perplexing aspects of dealing with PBMs is their claim of transparency. Many market themselves as open and upfront about their pricing and operations, but this so-called straightforward information is only a small part of the story.

Often hidden in the less noticeable sections of their contracts are various additional fees and charges. Sometimes, there might be extra charges for managing your account, or there could be fees that aren't clearly connected to any specific service. If your PBM claims to be transparent, ask if their pricing structure includes any of the following components and, if so, request a breakdown of how they’re impacting your budget. 

• Spread Pricing Fees: The difference between what the PBM charges the plan and what it reimburses the pharmacies.
• Administrative Fees: Charges for the overall management and operation of pharmacy benefits.
• Pharmacy Network Fees: Fees for access to a network of pharmacies.
• Compliance and Regulatory Fees: Charges related to maintaining compliance with healthcare laws and regulations (i.e. CAA Reporting).
• Data Management Fees: For the handling and processing of data and claims.
• Clinical Program Fees: Charges for the implementation and management of clinical programs (i.e. prior authorizations).
• Audit and Reconciliation Fees: For auditing services and reconciliation of accounts.
• Therapeutic Switch Fees: Charges incurred when a PBM encourages a switch to a different medication.

• Mail-Order Markups: Markups on medications dispensed through mail-order pharmacies, which are often owned or affiliated with PBMs.
• NDC Up-Charging: NDC stands for National Drug Code. PBMs often charge more for drugs with a specific NDC than what is justified by the cost or market price.
• DIR Fees (Direct and Indirect Remuneration Fees): This is a big one. These are fees that PBMs charge pharmacies after the point of sale, meaning a medication could be advertised as one price, but in reality, the cost is much higher. 
• Clawbacks: PBMs often collect more money from the patient in copays than the cost of the drug to the plan, and then 'claw back' this excess from the pharmacy.

What Employers Can Do About PBM Pricing

As an employer, simply accepting the 'transparent' label isn't enough; it's imperative to probe further into what the offer truly entails. This careful scrutiny is crucial now more than ever, as new PBMs are entering the market and traditional PBMs, recognizing the demand for greater clarity and openness, are beginning to include options in their pricing structures labeled as 'transparent' or ‘pass-through.’ If history is our teacher here, they’re likely still taking advantage of their clients in some way or another. 

At SmithRx, we’re tired of the games. We've committed to a different approach – being 100% pass-through and transparent, all the time. We believe that our clients should directly benefit from cost savings without worrying about hidden fees or margins that could inflate their expenses. By choosing SmithRx, employers partner with a PBM that is transparent in its operations, straightforward in its pricing, and dedicated to reducing healthcare costs. This approach not only fosters trust but also ensures a mutually beneficial relationship, where managing healthcare benefits becomes a collaborative and cost-effective endeavor. 

See how much an honest, 100% pass-through PBM can save you. Request a repricing analysis.