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October 8, 2022

2022 Q3 Rx Newsletter: Price models refresher

Picking the pricing model that works for your plan!

Plan Sponsors have options when it comes to PBM pricing models. Based on market interest, each PBM offering will vary and include different options that fits each plan sponsor the best.

Traditional

A traditional PBM contract is when the PBM uses sources hidden within the contracts to create revenue. These PBMs may receive revenue from spread pricing, which is the difference between what the PBMs pays the pharmacy filling the claims and what the PBM bills the plan sponsor. They will also retain a portion of the manufacturer rebates that are generated when a client’s members are filling rebate eligible drugs.

  • Over 90% of self-funded, carved-out plans are in the traditional pricing arrangement.
  • Typically, this arrangement does not have an administrative fee as the PBM generates revenue through spread.
  • Can produce high savings for the plan, while also providing contract guarantees.
  • Little to no transparency on how much the PBM is making and how they are making it.

Transparent / Pass-Through

A true transparent or pass-through model may vary by PBM but will always pass-through 100% of discounts and rebates to the plan sponsor. The PBMs revenue is derived from either a per script fee, per member fee, or a per month fee.

  • While currently only a small portion of the self-funded, carved-out plans are in this pricing model, it has continued to gain traction over the past few years.
  • PBM is very transparent about all potential revenue.

Variations of Traditional & Transparent models

  • NADAC: National Average Drug Acquisition Cost. This model typically falls into the transparent/pass-through model.
    • Fully transparent, with free access to all NADAC drug pricing posted on Medicaid.gov.
    • Plan Sponsor is always charged the same amount that is reimbursed to the pharmacy.
    • 99% of prescription medications have a NADAC price. If there is no NADAC price available, a second layer of pricing based off of AWP is put in place to capture and process the claim. These are typically specialty medications.
    • Only source of revenue for the PBM is the administration fee.
  • Low Net Cost: This model can be either traditional or transparent/pass-through.
    • In a traditional model, a low net cost model typically means a PBM is applying a brand over generic strategy in order to capture highly rebated medications. The cost of the brand minus the value of the rebate makes the brand more affordable than the generic.

In a transparent model, low net cost typically means the PBM is making clinical decisions on which drugs to exclude within a specific drug class. High cost, low value medications are normally excluded from the formulary.

In short, there are variations of traditional and transparent PBM pricing models with district options so that Plan Sponsors are paired with the best model for them. Contact us to learn more about PBM pricing models and which model is best for you at https://mmaeast.com/contact/