Drug delivery Featured

9:58am EDT July 22, 2002

Prescription drugs account for about 12 percent of the nation’s total medical expenses, so it’s no surprise that HMOs and other managed care organizations try to keep the $80 billion annual bill to a minimum.

Drug costs were growing at about 13 percent in 1996, and MCOs have been looking for ways to cut their costs. One solution has been to restrict the spectrum of drugs covered via a list of approved drugs, known as a formulary. As a result, a patient’s drug therapy can change if he or she switches plans.

Firms called Pharmaceutical Benefit Managers have taken on a greater role in the quest to contain prescription drug costs, according to the Alliance for Health Reform. Once entities that processed prescription claims for insurers, these companies now control slightly more than a third of the pharmaceutical market. They offer a range of cost-cutting services to health plans, including making the decision on which drugs a health plan will normally pay for.

“The biggest single change in drug delivery is on the claims submission side,” says John Skhal, a doctor of pharmacy and president and CEO of PCN, a Sacramento, Calif.-based pharmaceutical benefits manager. “Managed care quickly adopted online transaction processes for collecting prescription claims, and effectively enforce a number of requirements on dispensing prescriptions, including maximum cost, quantity limits and formula.”

PBMs manage each case, looking for problems or conflicts in the drug therapy.

“Between 10 and 25 percent of hospitalizations are caused by conflicting medications or overusage of multiple drugs,” notes Skhal. If the computer detects a conflict, the doctor and the pharmacist are notified. If hospitalization rates are kept low, MCOs can keep the rates they charge businesses low.

Not all MCOs use a PBM to manage the pharmacy portion of their total medical costs. From 1991 to 1997, the national HMO average drug cost increase was 15.3 percent. For PCS clients, it was 6.8 percent.

“A small- or medium-sized employer should look for health care programs that provide management of the pharmacy program, and incorporate professional services such as case management support where drug therapy is reviewed,” says Skhal.


What is a PBM?

  • A PBM is a pharmaceutical benefit manager, a company that monitors drug costs and usage, typically in conjunction with a managed care organization or a self-insured employer.

  • A PBM will analyze all the drugs being taken by a particular patient, and choose the best drugs based on price and formula.

  • A PBM will notify the doctor and pharmacist of any potential drug conflicts or complications, reducing the hospitalization usage by patients under their care.

  • Not all managed care companies utilize a PBM for their drug management.

  • PBMs control about one-third of the pharmaceutical market.

  • Some PBMs are owned by drug companies, some affiliated with hospitals and others are independent.