Modular PBA: Reimagining Pharmacy Benefits For Employers

Understand Important Components of a Modular PBA Strategy for Employers

In 2023, Blue Shield of California (BSC) announced a new pharmacy supply chain model with the goal of removing the potential misalignment of incentives that can occur in traditional PBM offerings.  The model entails unbundling various components typically managed by a single PBM, including claims processing, customer service, network pharmacy management, mail order services, specialty management, and rebate management.

The PBM industry is under scrutiny, which has been heightened by hundreds of state and federal legislative efforts and class-action lawsuits alleging employers did not meet fiduciary obligations within their pharmacy benefit offerings. These market dynamics have created increased interest among employers in exploring the more disruptive modular approaches. In this blog, we’ll discuss how employers can carve out services to align with their organizational strategy and what is important to understand about a modular PBA procurement compared to a traditional one.

Component Strategies for a Modular PBA

While most employers may not pursue the extensive modular approach of BSC, many are interested in adopting elements of this model. A practical starting point is designating a “core provider” to handle fundamental services:

• Claims processing
• Customer service and member communications
• Retail pharmacy network management for both 30 and 90-day prescriptions
• Potentially, formulary and utilization management

This core vendor serves as the hub that coordinates with other specialized components. Developing a clear strategy for how this core provider will integrate with additional modules is essential for success.

Mail Order

Employers may wish to include a separate mail order provider for members who benefit from having 90-day supplies delivered directly to their homes. Several vendors offer pricing models based on NADAC or acquisition cost, which can integrate with the core service provider. Alternatively, employers may also choose to have this service provided by the core vendor itself.

Specialty Pharmacy

Specialty pharmacy has become a critical component of pharmacy benefits, yet it faces scrutiny since many traditional PBMs own specialty pharmacies. This could lead to misalignment of incentives. When a PBM owns a specialty pharmacy, it may be incentivized to steer claims toward its own facility, directly increasing revenue through higher claims volume.

Rebates

Perhaps the most nebulous component of pharmacy benefits, rebates are typically managed through group purchasing organizations (GPOs) owned by major PBMs. These GPOs negotiate with pharmaceutical manufacturers for rebates based on:

• Access (placing the manufacturer’s drug on the formulary)
• Volume/steerage (increasing the number of claims for the manufacturer’s drug through formulary placement and plan design)

Since these GPO entities generate revenue for their owners, conflicts of interest can arise when the owner also controls clinical and formulary decisions. Many PBM-owned GPOs are willing to perform services on behalf of smaller PBMs as well as individual employers that have plan membership above a certain size. Having a separate rebate vendor is not overly disruptive to a plan’s membership.

Formulary Creation and Utilization Management

In traditional PBM arrangements, the PBM controls formulary creation and utilization management strategies (e.g., prior authorization, step therapy, supply limits). In the traditional PBM model, where the PBM owns the formulary decisions and steerage strategies, it is easy to see how this component can conflict with the employer’s interests.

Creating the Right Approach for Your Organization

There are many strategies an employer may deploy if they are interested in unbundling the traditional full service PBM model. This flexibility is the beauty of the model. As previously stated, an employer may wish to find a core vendor which will handle some of the basic pharmacy benefit functions, such as claims processing, member services, pharmacy network administration and reporting. Other employers may be interested in having the core vendor perform formulary construction/maintenance as well as utilization management. If the core vendor is not tied to the provision of rebates, there is less chance of a conflict of interest since the formulary and drug steerage programs are not linked to an owned rebate GPO. Some employers may wish to have a separate organization provide formulary and utilization management functions. The components and construction of this modular model can be mixed and matched to suit the employer’s needs.

Importantly, employers don’t need to implement a complete modular system all at once. Many employers just want a vendor capable of handling all traditional PBM functions while reserving the right to carve out certain elements over time. Is this something built into your current agreement? Creating a pathway to modularity begins with negotiating a contract that provides the necessary flexibility to align your pharmacy benefits with your evolving organizational strategy.

Employer Considerations for a Modular PBA Procurement

It is important to note that the creation of a modular PBA model will take more time than a traditional PBM procurement. At PSG, we recommend the following approach:

Stakeholder Input: Gather insights from human resources, benefits administration, finance, operations specialists, pharmacy personnel (if applicable), and leadership to understand program goals and identify current vendor strengths and weaknesses.

Pre-Bidder Interviews: Meet with potential core providers and specialized vendors to determine the “philosophical match” before formal bidding begins. Often, in a traditional procurement exercise, the employer would not meet with the potential vendor(s) until they are chosen as a finalist, which is too late.

Customized Procurement Documents: Develop tailored RFPs for each component the employer wishes to evaluate.

While standard procurement typically takes up to 20 weeks, a modular approach may require twice that time. We advise clients interested in modular PBM solutions to begin approximately 15 months before their intended implementation date. For example, employers targeting a January 1, 2027 launch should initiate procurement processes in Q4 2025. Starting early positions the employer with the maximum flexibility and leverage during negotiations.

Each modular component requires a separate RFP because each will be held to a separate set of rules and requirements. The modular bidders will not only need to show their financial value to the client, but they will also need to prove that they can and will work with the other vendors chosen by the employer. Depending on the modular strategy, bidding vendors must demonstrate not only their financial value but also their willingness and ability to collaborate with other selected vendors. Administrative fees may need adjustment based on required services, and financial modeling must account for various fees and claims costs across multiple vendors.

While implementing a modular PBA approach requires additional upfront investment of time and resources, the potential rewards are substantial, including improved transparency, better alignment of incentives, and ultimately greater control over your pharmacy spend.

Whether you’re considering a fully modular pharmacy program or simply carving out specific components, PSG has the expertise to help you identify and implement the optimal vendor combination for your organization’s needs.

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