Drug discounts are reductions in the cost of prescription medications as negotiated by pharmaceutical manufacturers and Pharmacy Benefit Managers (PBMs). The PBM acts as an intermediary between the pharmaceutical manufacturers and the self-insured groups, negotiating discounts on behalf of the plan. Discounts usually depend on drug categorization and should reduce plan and participant spend. Discounts also increase share for pharmaceutical manufacturers.
Drug discounts affect self-insured plans in several different ways:
Formulary management: PBMs work with self-insured plans to develop and manage a formulary, a list of approved medications covered by the plan. PBMs negotiate drug discounts with pharmaceutical manufacturers to include or exclude drugs from the formulary and obtain favorable pricing terms. These discounts can result in cost savings for the plan and its participants.
Rebates and discounts: PBMs negotiate rebates and discounts with pharmaceutical manufacturers. While drug rebates are typically paid after the drug is dispensed, drug discounts are applied at the point of sale. When a member fills a prescription, the PBM applies the negotiated discount to the medication’s list price, reducing the out-of-pocket cost for the member. Later the contracted rebate for the drug is passed on to the plan, reducing the overall drug spend.
Network pharmacy contracts: PBMs establish contracts with a network of pharmacies, including retail pharmacies, mail-order pharmacies, and specialty pharmacies. These contracts often involve negotiated drug discounts for medications dispensed at participating pharmacies. Discounts should be passed on to the self-insured group insurance plan, resulting in lower costs for covered medications.
Generic substitution: A plan formulary may encourage the use of cost-effective generic medications. Negotiated discounts on generic drugs could make them more affordable for the plan and lowers participant co-pays.
Cost transparency: Validating and monitoring discounts is a great way to ensure contracted guarantees are being met. A level of cost transparency, whether from your PBM or a third-party vendor, gives plans insight into costs, formulary management strategies, and supplemental programs like generic alternative identification.
Securing discounts that help lower medication costs for the participant and self-insured plans can significantly impact spend and the health of the benefit package.
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Prescription Care Management (PCM) is a health tech company that simplifies pharmacy and medical benefits management for brokers and self-insured plans. With our RFP tools, stakeholders can benchmark rates, rebates, exclusions, discounts, and more to ensure they get the best plan available. To learn more about how PCM can help you, click here.