Partnering with Your PBM to Reduce Drug Benefit Costs for Health-System Employees



Michael Medel, Pharm D, MBA
May 21, 2019

As both consumers and providers of healthcare services, hospitals and health systems have a unique ability to lower pharmaceutical costs for their employees while keeping revenue inside the system, decreasing risk, and improving patient care. This can happen as human resources and pharmacy departments work together with the pharmacy benefit manager (PBM) to lower costs for drug benefits.

Too often, however, these two departments don’t communicate—or at least not very often. They tend to operate in silos, with seemingly differing priorities:

  • With a focus on member choice and satisfaction, human resources professionals want to provide employees and their dependents with a rich benefit at the lowest possible cost. Many times, this includes broad network and formulary options that tend to align with the PBM’s recommendations. Decisions surrounding the drug benefit are often made based on suggestions and modeling completed by the PBM.
  • As a hospital revenue driver, the pharmacy department is interested in volume—keeping employee prescriptions in-house can provide an additional volume that is currently flowing to external pharmacies. Thus, being included in the employee benefits network should be a minimum requirement for in-house pharmacies. Further, health-system pharmacists are patient-centered and work closely with doctors to ensure the best clinical outcomes.

The mismatch between PBMs and their health-system clients

Traditional PBM engagements do not foster cooperation between the HR and pharmacy departments. The financial success of most PBMs depends on increasing claim volumes and boosting margins with higher-cost products. This is at odds with a health system’s goal to provide optimal care at the lowest possible cost. HR and pharmacy departments that work in silos fail to help the business achieve its goals and put the PBM at a financial advantage.

The power of cooperation

A united HR and pharmacy team is a force to be reckoned with. They can capitalize on each other’s strengths and cancel out their inherent weaknesses for the good of the enterprise. With its high-volume discounts, for example, the pharmacy department can purchase drugs cheaply for the health plan and sell them at a low cost to human resources. In addition, health-system pharmacists can identify lower-cost drugs for the formulary and can use their strong relationships with prescribing physicians to guide them to optimal drug selection.

A good example of this is the drug Duexis, which is a combination of generic Pepcid and generic Motrin. Over-the-counter, these two drugs cost about $10 for a month supply. However, a 30-day supply of Duexis can cost well over $1,000. The PBM may include Duexis on its formulary and offer the health plan a 90% rebate. That looks good on paper, but $100 is still more than $10.

The prescribing physician has little information about the cost of this drug and may even offer the patient a coupon to reduce their copay. However, the health plan’s use of Duexis could drive up the overall expense and lead to higher overall medical premiums or decreased benefits over time. Pharmacists understand the actual cost of Duexis and can recommend the highly effective, less-costly alternative.

A new approach to PBM engagement

When hospitals and health systems integrate pharmacy benefit management into their enterprise pharmacy strategy—i.e., when pharmacy and HR work together—they can:

  • Lower unit cost, which can lower out-of-pocket costs for members.
  • Flatten the cost increase trend line, improving profitability in a risk environment.
  • Improve patient outcomes through higher-quality care.

The pharmacy department has a particularly vital role in this integrated model. Pharmacists can support the employee health plan while improving system revenue and profit goals through purchasing advantages. As discussed above, they influence prescribing and can often make prescription changes to benefit patients and the plan. What’s more, they interact with the patient at every stage of care, from the hospital bed to clinic visits to the patient’s home.

You can start now

Take a look at your current environment and identify areas where you can bring immediate value to your organization. Pharmacy and HR leaders should collaborate on possible options and develop a roadmap to take more control of the pharmacy program. Some areas for improvement could include dispensing capabilities, clinical program development, formulary management, and, of course, your overall PBM relationship.

Keep in mind that the marketplace is in a state of flux. Recent PBM mergers with insurance companies— namely, Cigna/Express Scripts, UnitedHealthcare/OptumRx, and Aetna/CVS Health—may serve to work against plan sponsors. These consolidations, as well as closer relationships with big pharmaceutical companies, are putting PBMs under tight scrutiny for their lack of transparency, however. Thus, these pressures create an opportunity for plan sponsors like hospitals and health systems to identify opportunities for renegotiating their PBM contracts to reflect more favorable terms.

Looking for best practices to minimize employee drug spend? Contact PSG for a complimentary consultation. We can help optimize your pharmacy program through a combination of diagnostic evaluation, clinical program assessment, PBM contract enhancement, strategic recommendation, and detailed program performance metrics.

Download Health System Diagnostic Overview |


Mike’s background includes helping health systems leverage their pharmacy programs to drive revenue, produce employee plan savings, and improve risk arrangements with payers.