This year, US companies are expected to spend more on healthcare benefits ($1.4T) than they are projected to make in profit ($1.3T). Against all odds, Todd Bisping, Global Benefits & Health Manager at Caterpillar Inc. (and Nava Advisor), has found the secret sauce to keep the company's healthcare costs flat for an astonishing and commendable 15 years (!)
He'll be the first to tell you how: Rx Management. It's one of the biggest cost-saving unlocks at your disposal. Still, its cost-cutting potential is often overlooked by HR leaders. But why?
The truth of the matter is that the prescription drug space is confusing, complex, and downright maddening. And unfortunately, many employers feel powerless in their relationship with their partner in pharmaceuticals, the mighty PBM (Pharmacy Benefits Manager). But it doesn't have to be that way.
Prescription drugs are astronomically expensive, accounting for $359 billion (with a B) in annual costs in the US alone. And these costs are only expected to continue growing, with an average 5.7% annual increase in retail Rx spend. So to achieve enduring cost savings, every employer, large or small, should have a solid Rx understanding (and strategy) at the ready.
Todd joined us for a live crash course in all things Rx, with actionable advice for employers of any size. Read on for key takeaways.
What is a PBM?
PBM stands for Pharmacy Benefits Manager. These are third-party companies that manage all things pharmaceutical drugs: from processing and paying prescription costs, to negotiating costs with providers, to determining your employees' access to certain medications.
PBM expectations vs reality
That's what's expected of a PBM — cost savings, expert guidance, an advocate in your corner.
The reality? Well... it's not exactly ideal.
"Right now, PBMs are getting a bad rap," Todd explained, "and sometimes it's justified, and sometimes it's not. They're a business like anybody else, trying to maximize their revenue, and they do a pretty good job of it. But some of that stuff is at the expense of us as plan sponsors or our employees."
PBMs were initially established to save employers money on their drug costs. But with the way the system is set up, PBMs weren't (and still aren't) incentivized to give employers a good deal; in fact, the higher the cost of the drug, the more money PBMs make.
Over time, the PBM model morphed into a complicated system that too often prioritizes profit over outcomes. But in the end, as Todd emphasized, "What PBMs started out as is what they should be... It sounds pretty simple, but sometimes simple is what can save the day."
SMBs should be able to provide employees with affordable, effective prescription drug plans. And we're here to tell you: that's not too much to ask.
How can SMBs save on Rx costs?
It's 100% possible to see some big cost savings from your PBM. But it'll require some savvy, attention to detail, and strong allies in your corner.
Here are Todd's tips to maximize your PBM partnership:
- Vet your PBMs before you sign on. That's right, you do have a choice here. You want to find a PBM who's flexible, transparent, and willing to work with you. As Todd says, "PBMs can have a reputation of kind of being bullies... I need someone who wants to be more of a partner with me."
- Find an external partner who's up on the ins and outs of PBMs. Believe it or not, there are individuals (and entire companies) who spend their days studying PBM contracts, and they may be able to help. "It's important to find someone you trust who's not your PBM. A great example is Brandon [Weber, Nava CEO] — call him!" This space is complex, and sometimes you'll need a friend to help you navigate. By aligning with a pharmacy expert, you can ensure you're getting the unbiased guidance you need.
- Review your PBM contract language with a fine-tooth comb, and be sure you're clear on all contract definitions. PBMs will sometimes insert purposely nebulous or confusing language into their contracts. But don't let this scare you — because the potential savings are huge. "If you go in there and get your contract tight, a lot of companies save 10% off the top.
- Level up your drug formularies. Without getting technical here, a formulary is a list of prescriptions covered under your plan. And this list (and what's on it) can be a make-or-break in your overall drug spend. "If you'll take the time to do an evidence-based design for how and when you cover different drugs, it's a win-win for your company and for your employees." By encouraging high-value prescriptions, both the employer and the employee will save money without sacrificing on outcomes.
- Ask your broker to present a strategy proposal for Rx savings. We won't lie to you — a lot of brokers may not have a solid handle on Rx management. But a good broker should hold the domain expertise needed to help you clean up your contracts and strategies. And considering how quickly annual Rx spend increases (once again, 5.7% each year), then your broker should be able to help you out on this. After all, they're your healthcare broker, and Rx is a major part of healthcare.
Want more prescription plan guidance? Book a free Rx strategy consultation with one of Nava's industry-leading PBM experts.