Strategies to Enhance Pharmacy Benefit Management

STRATEGIES TO
ENHANCE PHARMACY
BENEFIT
MANAGEMENT OF A
SELF-INSURED
EMPLOYER’S
EMPLOYEE
PRESCRIPTION DRUG
PLAN
This report was developed to assist self-insured employers and others in understanding
better the options available to address double-digit prescription drug spending growth. It
was written with information and data compiled from a review of the literature and
interviews with drug company and PBM insiders, pharmacy and PBM auditors, attorneys,
industry analysts and experts, prescription transaction processors, and the compilers of the
leading pharmaceutical databases. Much of the findings noted herein are the result of a
scientific analysis of several hundred thousand pharmacy claims that were recently
processed by each of the largest PBMs.
The TransparentRx
Manifesto

Strategies to Enhance Pharmacy Benefit Management of a
Self-Insured Employer’s Employee Prescription Drug Plan
2015
1 2850 W Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89052
Phone: (775) 432-6262 | Fax: (866) 515-9591 | Web: www.transparentrx.com
TABLE OF CONTENTS
Marshal In-House Experts………………………………………………………………………. 2
Reverse Auctions – Dump the Traditional RFP……………………………………….. 5
Pharmacy Benefit Manager Contracts…………………………………………………….. 5
Vet PBM Consultants not just for "advice" but Execution………………………… 7
Form a Strategic Alliance, Start-up or Acquire a PBM……………………………… 8
Specialty Drug Management……………………………………………………………………. 8
Formulary & Utilization Management………………………………………………………10
Plan Design……………………………………………………………………………………………… 12
Merge All Relative Data Sources……………………………………………………………….15
Closing Argument……………………………………………………………………………………. 15
About the Author……………………………………………………………………………………...15
Bibliography……………………………………………………………………………………………. 16

2015
he most flawed stories are those that we think we know best and are often repeated by those
around us – and so we rarely investigate further. Ask anyone directly involved with pharmacy
benefits to name the most important aspect of selecting a pharmacy benefit manager (all things
being equal) and you will undoubtedly hear: transparency, of course.
The contracts that self-insured employers sign with pharmacy benefit managers or PBMs are often
confusing, full of industry jargon, and provide ample opportunities for the PBM to hide significant cash
flows. All pharmacy benefit managers claim some level of transparency; to say otherwise is essentially a
death sentence. Employers may assume they’re paying pharmacy costs and administrative fees, but are
unaware of the exorbitant markup that occurs in the middle.
Nearly 8 out of 10 payers are overspending by 15% or more on pharmacy benefits, according to a recent
survey. Some of the main causes of payers’ unrestrained remuneration for pharmacy benefits include:
 Specialty Medications
 Pharmacy Benefit Manager Contracts
 Plan Design Strategy
 Employee Demographics and Dynamics
If you’re facing any of the main causes for cost increases listed above or are working to improve patient
outcomes while managing rising pharmacy benefit costs, keep reading.
Marshal In-House Experts
Mom always said, “When you absolutely need something done right, do it yourself.” Still today, this
philosophy often proves true. When employers truly comprehend the ramifications of how PBMS make
money, the employer is in a much better position to successfully manage the PBM relationship and to
negotiate contracts that maximize the value in the prescription drug plan.
This is especially true for employers who lack in-house expertise in pharmacy or pharmacy benefits –
from both sides of the table. Generally, PBMs generate revenue through the following strategies:
Administrative fees. PBMs often charge a transaction fee to the payer and pharmacy for every claim
they process. However, they are able to generate revenue for themselves in many ways other than
administering the claims.
T

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Differential Brand Pricing. PBMs create a contract with the
employer to pay for a brand name drug at a discount from the
Average Wholesale Price (AWP) of the drug. They also create a
contract with the retail pharmacies in their network to pay for
brand name products, but at a different discount rate. For
example, the contract with the employer may be for AWP minus
14%, but with the retail pharmacy it may be AWP minus 16%. This
pharmacy withhold is retained by the PBM as profit.
Differential Generic Pricing. PBMs will generally contract for
generic prices with either an AWP discount or a set rate called a
Maximum Allowable Cost (MAC). It is not uncommon to see PBMs
contract with employers at an AWP discount while contracting
with the pharmacies for a MAC price. Similarly, PBMs may use a
different MAC price list for employer invoicing than is used for
paying pharmacies. Again, the differential between these two
methods is retained by the PBM as profit. Differential pricing is
particularly egregious in PBM captive mail-order pharmacies.
More about this later.
Differential Dispensing Fees. Similar to the strategies for
ingredient costs for brand and generic medications, PBMs will
often negotiate different pharmacy dispensing fees over the term
of a contract for the employer and the retail pharmacy network.
The difference in these dispensing fees may be retained by the
PBM as profit.
Rebates. PBMs typically negotiate rebates with drug
manufacturers based on access, volume, or market share within a
particular therapeutic class. The PBM may hold rebate
contracts—which are often confidential and viewed only by
auditors—or aggregate volume claims with a subcontractor. This
is a challenging area to manage and validate in that it is difficult to
ascertain whether the PBM is sharing the rebates with the
employer in a fair manner.

2015
Often, when a PBM claims that they are
sharing a percentage of the rebates with the
employer group, it may be for the
volume/market share components alone—not
the rebates received for preferred formulary
access. Rebates may also create misaligned
incentives for the utilization of drugs within a
particular class.
For example, it may be advantageous for the
PBM to position a particular branded product
on a preferred formulary or to see utilization
of specific branded products in a therapeutic
category due to significant rebates, whereas
the lowest net cost to the employer may be
through greater utilization of generic
products.
Manufacturer-Sponsored Programs. These
include a variety of activities through which
PBMs may be deriving revenue. While less
common than in the past, included in this
category are therapeutic switching programs
in which manufacturers pay PBMs to attempt
to influence employers to switch favored
prescriptions to different brand name drugs in
a particular therapeutic category.
Another strategy is for the PBM to sell
prescription data to manufacturers or to third parties—data that support market research and strategy
so that these businesses can better target their sales efforts to prescribers.
Other Services. The PBM may also provide a variety of other services for the employer benefit plan,
including prior authorization and appeals administration, drug utilization review, disease management
programs, and formulary management.
An initial step in achieving better prescription drug benefit performance is to thoroughly understand

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how PBMs generate profits. With such understanding of this model, employers are better positioned to
negotiate a more favorable relationship with their PBM and to address how to best align strategies
between the employer (as payer) and the PBM.
Marshaling in-house expertise, along with having human resources personnel develop a more
sophisticated understanding of the complexities of the prescription drug benefit, can lead to more
effective management of the overall benefit. This will help to ensure appropriate dispensing and
payments, and by extension, control plan cost.
Reverse Auctions – Dump the Traditional RFP
Reverse auctions create a hyper-competitive environment, driving best value for payers. The process
often yields savings of more than 15% and allows the payer to probe deeper into the PBM’s formulary
structure and their inclusion of high cost specialty drugs that often require special handling and
administrative complexities.
PBMs traditionally apply smaller discounts to specialty drugs when compared to small molecular
pills and capsules – a growing problem given these medicines’ rising costs and growing utilization rates.
Companies must discuss this issue with PBMs and negotiate best possible specialty drug prices before
renewing their contracts.
First, evaluate when your PBM contract comes due. If that deadline is approaching, benefit managers
and HR executives should seriously consider bidding the pharmacy benefits in the open marketplace
auction. There is tremendous value now available from various parts of the pharmacy supply chain that
can rarely be accessed unless a reverse auction is conducted.
Once a daunting task for companies, open bids are easier to execute with newly available, sophisticated
RFP technology that reduces the time and money spent on determining and securing the best prices and
contractual terms. Payers must create their own fiduciary contract and put it out for bid vis-à-
vis reverse auctions.
Pharmacy Benefit Manager Contracts
Demand a Fiduciary Standard from Your PBM. How is it that a plan sponsor, regardless of size, can sign
a deal which doesn't hold its PBM accountable to a client-comes-first standard of care? Let's take a look
at the two standards:
1. Brokers or consultants (non-fiduciary)
 Must recommend "suitable" products, not necessarily best or cheapest

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 Fixed Fee, commissions or other transaction-based fees
2. Advisers (fiduciary)
 Must put clients interests before their own
 Most charge a percentage of assets or a fixed fee
Here is the definition of Fiduciary from Wikipedia...
A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties.
Typically, a fiduciary prudently takes care of money for another person. In a fiduciary relationship, one
person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another
whose aid, advice or protection is sought in some matter. In such a relation good conscience requires the
fiduciary to act at all times for the sole and interest of the one who trusts.
A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in
circumstances which give rise to a relationship of trust and confidence. A fiduciary duty is the highest
standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to
whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and
must not profit from his position as a fiduciary, unless the principal consents.
When a fiduciary duty is imposed, equity requires a different, arguably stricter, standard of behavior than
the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a
situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his
fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position
without knowledge and consent. A fiduciary ideally would not have a conflict of interest.
High Flying Organizations (HFOs) are hustled out of their hard earned money every day by some TPAs
and pharmacy benefit managers. Add an additional safety net by requiring your PBM to sign as a
fiduciary.
Press for Binding Transparency. If the fiduciary standard is unattainable then the PBM–client contract
should impose multiple transparency requirements on PBMs, including requirements that the PBM
provides the following:
 A contractually binding, “net acquisition cost” guarantee for all brand and generic drugs
 An aggressive discount guarantee for all specialty pharmaceuticals including new-to-market
specialty drugs

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 Market Check Language which authorizes the client to renegotiate and improve any drug
discount if a better price becomes available in the market
 Claw Back Language allowing the employer to drag back and recapture compensation if lower
prices are discovered during the market check process
With such contract terms in place, every plan executing a contract after Sovaldi entered the market
would now have in place an aggressive AWP discount for Sovaldi of at least AWP minus 17%. Moreover,
when the FDA late last year approved two new hepatitis C drugs, Gilead’s Harvoni and AbbVie’s Viekira
Pak, every plan would have known that its PBM would automatically provide a default discount when
the first prescription of each drug was dispensed.
Vet PBM Consultants not just for "advice" but Implementation and Execution
In an effort to simplify the administrative complexity of a PBM assessment process and to ensure the
best value in final PBM selection, many plan sponsors will use benefits consultants with specific
expertise relative to the PBM industry and PBM contracting. Although such consultants can provide
significant value to the plan sponsor, the selection should also be conducted with equal due diligence
and year-end results in mind.
Plan sponsors are advised to carefully assess a consulting firm’s background and experience in this
particular realm. Many consultant firms may also have their own conflicts of interest, including
brokerage relationships with select PBMs generating sizable chunks of revenue for the consultant.
1. Conduct a thorough assessment of a consulting firm’s previous experience
• Require the consultant to provide details of the past several PBM consultation services
provided: type of organization served, final recommendations, and rationale for these
recommendations and vendors chosen
• Be mindful if the consultant appears to be recommending one vendor on a more consistent
basis than others
2. Ask potential consulting firms to conduct a complimentary assessment of your plan’s PBM contract,
benefit structure, and formulary to assess their level of expertise
3. Require consulting firms to provide full legal disclosure of potential conflicts of interest, with full
audit rights

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4. Request detailed information from consulting firms about the methodology for soliciting and
evaluating PBM bids; carefully assess issues addressed in this article
PBM consulting is not a one-off linear implementation, but a lifecycle of iterative and multi-layered
phases. Each phase has its own set of practices and disciplines that are essential for optimizing
processes against set performance outcomes. PBM consultants should help clients to assess, analyze
and determine a viable roadmap initially and then build momentum throughout the contract term with
consistent, incremental deliveries demonstrating measurable and meaningful business gain.
Form a Strategic Alliance, Start-up or Acquire a PBM
As a result of the Patient Protection and Affordable Care Act (PPACA), consolidation is rampant within
the healthcare industry. Big 5 insurers, PBMs, hospital systems and pharmaceutical manufacturers are
banding together to protect top line growth as margins are being squeezed.
Except for leaches, self-insured employers have largely been left to fend for themselves. For you, the
status quo is not a long-term solution. If you want to continue offering a pharmacy benefit into the next
decade and beyond, a shrewd benefit strategy is paramount.
Banner Health, a fully integrated health care system that includes 28 hospitals, made the recent decision
to form its own PBM. Another example, Fairview Health Services, created ClearScript to provide PBM
services to their employees. In its first year using ClearScript, Fairview saved itself $2.6 million.
Confident that other companies could benefit from its lower-cost business model, ClearScript brought its
PBM services to the marketplace.
Is it unreasonable for a company with 2,500 employees to start their own PBM in order to eliminate
excessive middleman costs? The simple answer is no, absolutely not! There are plenty of turnkey PBM
solutions in the marketplace from which self-insured employers to take advantage. TransparentRx is
one, for instance.
Specialty Drug Management
Indication-Specific Pricing Model. Tarceva, a drug co-marketed by Roche Holding AG and Astellas
Pharma Inc., has shown a smaller benefit in pancreatic cancer than in lung cancer. In one clinical trial,
Tarceva extended the median survival of pancreatic cancer patients by less than two weeks versus
placebo.
In a separate trial, it prolonged survival among lung cancer patients by about 3 ½ months versus
chemotherapy. Thus, the per-pill cost of Tarceva would be lower for pancreatic-cancer patients than for

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lung-cancer patients, given the reduced efficacy. Tarceva currently costs about $6,850 a month per
patient (AWP minus).
In an indication-specific pricing model, the per-pill cost of Tarceva would be substantially lower for
pancreatic-cancer patients than for lung-cancer patients, given the reduced efficacy.
Distribution Paths. It’s well recognized that how a specialty drug gets delivered to the point of
administration—the clinic, the doctor’s office or, in some cases, the patient directly—affects drug
pricing. The FDA forces some manufacturers to limited distribution to specialty pharmacies as the price
of their approval. These limited distribution plans are included in the manufacturer’s Risk Evaluation
and Mitigation Strategy (REMS). The three primary distribution paths for specialty drugs:
1. Buy and Bill - physician practices purchase drugs directly from a distributor.
2. White Bagging or External Delivery - the drug is shipped from the manufacturer to a specialty
pharmacy, and then to the physician practice.
3. The drug is shipped from a wholesaler to a retail pharmacy
On average, private payers range between 45% and 76% in having no mandate for buy and bill or
external delivery (source: Health Strategies Group); large regional insurer plans mandate external
delivery 55% of the time including 23% that mandate a specific specialty pharmacy.
In the case of external delivery, the physician is not purchasing the drug out of its own pocket, but
simply arranging reimbursement for dispensing the drug, whose cost has been arranged between the
payer and the specialty pharmacy.
Shift Administration of Specialty Drugs from the Medical Plan to the Pharmacy Program. It can be
challenging for employers to estimate their spending on specialty drugs because these drugs are
sometimes billed through medical benefits and other times billed through PBMs. The inconsistency
makes it difficult to forecast how much is being spent on specialty pharmaceuticals.
When employers move the administration of specialty drugs from the medical plan to the pharmacy
program, they can take advantage of better cost and care measurement. For example, instead of a
doctor ordering and dispensing a specialty drug in their office and billing it as a medical benefit, a
prescription drug program can better manage the drug’s cost and patient’s care.
To better manage and forecast future drug costs, ask your health plan and PBM to project very specific
future costs given your company's demographics and drugs that are currently in the pipeline.

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Formulary & Utilization Management
A formulary is a list of drugs favored by the PBM for their clinical effectiveness and cost savings.
Pharmaceutical manufacturers of specialty and branded drugs often promise financial incentives to have
their drugs featured on the formulary. Drug formularies can be open, incented, or closed.
An open formulary is a list of recommended drugs. Under this structure, most drugs are reimbursed
irrespective of formulary status. However, the client’s plan design may exclude certain drugs (e.g., OTC,
cosmetic and lifestyle drugs). Physicians, pharmacists, and members are encouraged by PBMs via
mailings, electronic messaging, and other means to prescribe and dispense formulary drugs.
An incented formulary applies differential co-pays or other financial incentives to influence patients to
use, pharmacists to dispense, and physicians to write prescriptions for formulary products.
A closed formulary limits reimbursement to those drugs listed on the formulary. Non-formulary drugs
are reimbursed if the drugs are determined to be medically necessary, and the member has received
prior authorization.
In general, self-insured employers and insurance carriers outsource both administrative and clinical
services to a PBM. Managed care organizations (MCOs) and some insurers may elect to retain formulary
and clinical control, including manufacturer contracting, and outsource only administrative services such
as claims processing and benefit administration to a PBM.
There are five factors necessary for a drug formulary to work effectively. These include:
 An enforcement mechanism
 A specific (tiered) list of drugs
 Understanding how the drugs are assessed
 A firm dispute resolution process
 An expedited appeal process
An enforcement mechanism is particularly important. Certain drugs require prior authorization before
they are covered under the drug benefit. Prior authorization is the pre-approval of a drug by the PBM
before a pharmacy can dispense it.
Currently, prior authorization of prescriptions is used only for a few chosen drugs. These are drugs that
are very expensive and have major off-label uses not approved by the FDA, such as growth hormones, or
drugs that require medical justification before coverage is approved, such as Viagra or Cox-2 Inhibitors.

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Before authorizing dispensing of one of these drugs, the PBM may ask the physician about diagnostic
tests, symptoms, and other clinical measures that would establish the appropriateness of the drug
according to evidence-based protocols. If the physician can’t produce the evidence it is unlikely the PBM
will reimburse the pharmacy for dispensing the drug.
In addition, PBMs use co-pays as a mechanism to shift some responsibility of utilization to the member
by making them sensitive to the cost of their utilization. Co-pays are also used to provide incentives to
encourage the use of generics or formulary drugs.
There needs to be consensus among stakeholders involved in constructing a drug formulary. The biggest
contributor to success is that all stakeholders in the system are part of the process. If the formulary is
developed solely by the PBM, without any input from the payer, it's unlikely the payer will fully benefit
from the improved patient outcomes and cost-containment opportunities a formulary exists to deliver.
P&T Committee. Pharmacy & Therapeutic committee members are attempting more aggressive
formulary strategies. In the past, formulary changes were largely limited to annual decisions for a new
calendar year, and newly introduced drugs were typically covered, at least until a formal review was
conducted.
Now, more P&T committees are conducting mid-year adjustments or decline to cover newly introduced
drugs without any medical exceptions until a full review is complete. There is also more interest in
timing P&T meetings to the launch of new medicines, as well as generics. Self-insured employers must
get involved in the process, from a micro-level, and not leave this sort of decision to the whims of your
legacy PBM or TPA. This is especially important with the advent of biosimilars.
Prior Authorizations. Employers may require a prior authorization (PA) before a pharmacy can fill a
brand or specialty drug prescription. This added level of control helps making certain that patients are
using the most cost-efficient and appropriate therapies. It is also good policy to require prior
authorizations for all compounded medications. In my opinion, payers should require a PA on any
medication which isn’t a tier 1 generic.
Step Therapy. Effective step therapy programs should be a standard practice, but aren’t. An effective
step therapy program requires plan members to try Tier 1 (Rx1) drugs first. If a participant tries a 1st
line treatment and is then allowed to use a new higher-cost drug, it should be prescribed for a relatively
small quantity along with samples. New medications may not be effective or may have adverse side
effects thus trying samples before filling the prescription drastically reduces waste. As a result, there
may be significant waste of the high-cost drug if no quantity limits are imposed.

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Plan Design
Some employers have added a specialty drug tier to pass along at least some of the cost of more
expensive drugs to employees and to help track the classes of drugs they’re utilizing. When benefits are
tiered different categories of drugs require different out-of-pocket costs. Subsequently, categories may
be broken up into preferred drugs and non-preferred drugs, generics, and specialty depending on the
needs of the plan sponsor or economics of the formulary.
Additionally, plans may include refill policies or step-therapy protocols. Refill policies use clinical
evidence to limit doses, ensuring a patient tolerates a new drug or to avoid wasting expensive medicine;
step therapy requires patients to start treatment with a lower-cost alternative drug, if available, and
transition to a specialty drug if the medication at the first step isn’t effective.
Narrow Pharmacy Networks. After cost-sharing, establishing pharmacy networks has been a popular
approach to cost management. Narrow pharmacy networks, not talked of much before 2010, are more
of a consideration after the contract dispute between Walgreens and Express Scripts. Providing the
broadest access to members may no longer trump the more favorable pricing of a narrow network. A
large and growing supply of retail pharmacies makes the narrow network approach possible.
I highly recommend local or regional companies seek out deals with independent pharmacies in your
area. These pharmacies often participate in large buying groups and specialty pharmacy networks which
allow them to compete with legacy PBMs. With the help of a consultant, who is unforgiving with regard
to waste elimination, regional companies can eliminate the middleman (PBM) thereby reducing costs.
Of course, the tradeoff is that your member base must be large enough to justify such a tactic.
Four Tier [Custom] Design. Pharmaceutical manufacturers have over 1,000 drugs in the pipeline. Some
of these drugs will change the way physicians prescribe, but they will keep people out of hospitals and
keep people at work. Unfortunately, it’s going to come at a price. High costs drugs are here to stay
folks. With that in mind, here is my template of a four tier plan design:
 Tier 1 (Rx1) comprises only lower-cost generic drugs. The medications are simply less expensive
yet efficacious.
 Tier 2 (Rx2) is reserved for most injectables, gene therapies, and biotechnology treatments.
 Tier 3 (Rx3) consists primarily of 2nd
and 3rd
generation brand drugs. These are reserved for
brand drugs which do not have a generic substitute or therapeutic equivalent in Rx1.
 Tier 4 (Rx4) is made up of 1st
generation brand molecules (non-preferred) which have generic or
therapeutic equivalents in upper tiers and some injectables.

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Each tier, excluding Rx1, requires a prior authorization, quantity limit and/or step therapy. Here is the
trade-off. While the lower three tiers feature the common escalating scale of copayments, the top level
(Rx1) is free for members; no out-of-pocket expense. Keep in mind, the average cost of a 30-day supply
of products on the 2nd tier is $1,000.
The three tier design doesn't handle the issues of today, and certainly not the issues of tomorrow. Rx4 is
an evolution of the lessons learned from the three-tier design. Most PBM formularies make pharmacy
an expense, not an opportunity. Isn’t it time to reposition brand drugs and include only generic and
specialty drugs in the first two tiers? In order to protect their rebate dollars, PBMs will oppose this idea.
Note: Patients who fail (adverse event or don’t reach target goals) on a Rx1 medication should be
required to try another generic medication, whether a substitute or therapeutic equivalent, before going
to a brand drug. I’ve personally seen patients, in my pharmacy, experience completely different results
from the same medication. The only difference was that we changed manufacturers.
Cost Offset Opportunity. Think of prescription drugs not just as a cost but a cost offset opportunity
[with some conditions] and a mediator of quality achievement. Type 2 diabetes is a progressive disease
which usually occurs slowly over time, for example. Most people with the disease are overweight or
obese upon diagnosis. Increased fat makes it harder for the body to use insulin the correct way. In my
opinion, type 2 diabetes is the disease state which offers payers the largest cost offset opportunity.
The goal of treatment, at first, is to lower high blood glucose levels. Long-term goals are to prevent
problems from diabetes. The most important way to treat and manage type 2 diabetes is with activity
and healthy eating. While some patients heed the advice of their physician; exercise more often and
adopting a healthy diet, most do not. Consequently, the disease will progress eventually causing severe
nerve damage, kidney failure or blindness.
One solution, every member diagnosed with type 2 diabetes should receive Tier 1 medications at no cost
and automatic enrollment in a MTM or medication therapy management program. That’s right, free!
Physician referrals and patient data analysis are the two main systems in which MTM patients are
recruited. The most significant impediments in preventing future complications with type 2 diabetes are
cost and lack of support. Offering generic medications free of charge eliminates the cost challenge.
With MTM, a pharmacist can counsel a patient on prescription and lifestyle therapies as well as their
medical/disease conditions, while working with the patient’s physician to create a medication plan to
decrease the likelihood of adverse drug events and increase the chance of an optimal patient outcome.

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CMS
In addition, MTM appointments (teleconference, video conference and face-to-face) create an
opportunity for pharmacists to recognize and address medication non-adherence, which when present is
an extremely important element in a patient’s healthcare outlook.
In patients with poor medication adherence, the risks of adverse effects and mortality rise; these not
only negatively impact the patient’s well-being, but also result in increased medical spending for both
the patient and the healthcare system at large. It goes without saying; every patient taking a specialty
drug should be auto-enrolled. When properly managed prescription drugs are a cost offset opportunity.
Move to an Employer Group Waiver Plan (EGWP). The percentage of employers that plan to continue
offering prescription drug plans to Medicare-eligible retirees has dropped dramatically in the past two
years. Slightly more than half of employers that now provide pharmacy benefits for Medicare-eligible
retirees will continue offering the benefit, down from 75 percent in 2010.
The fact that the government is now offering prescription drug coverage might encourage these
companies to dump the prescription drug coverage they were already offering employees. So Congress
gave them an incentive: Companies that provide retiree drug benefits get a subsidy of about $1,300 per
retiree per year in order to keep companies from ending their retiree drug plans at once and sending
everyone into the individual Medicare marketplace.
How EGWP Works:
Employer PBM
Employers now have a better option for controlling prescription drug costs for Medicare-eligible
participants. For example, since retiree drug subsidy (RDS) payments are no longer tax-exempt and do
not keep pace with rising drug costs, employers should consider moving to an employer group waiver
plan (EGWP) to take advantage of additional subsidies available as a result of PPACA.
Both self-funded and fully-insured employers contract with a PBM who in turn implements the
employer’s plan design. The PBM receives financial subsidies from CMS and as a result assumes
responsibility for CMS compliance and reporting. The PBM passes back subsidies and charges self-
funded employers an administrative fee. Your contract language should prevent the PBM from retaining
any portion of the subsidies.
Choose a plan with a track record of CMS compliance. When researching, look for a flexible formulary,
customizable pharmacy network and convenient member service hours to minimize member disruption.

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Merge All Relative Data Sources
Today, companies are using data analytics to proactively implement tactics to improve business
processes rather than reacting to problems after they happen. Since data sets are more granular, easier
to access and integrated with many other business systems, businesses are able to be much more
strategic in their tactical implementation than ever before.
With pharmacy spend in particular, analytics allow payers to look at more detailed data sets to identify
costs by class of trade, NDC or disease state, to name a few. By categorizing pharmacy spend, key cost
drivers are clearer and corrective solutions, such as prior authorizations or quantity limits can be put in
place to reduce spend in those areas.
Closing Argument
I’ve been fortunate enough in my life to build two custom homes hiring a GC or general contractor on
each occasion. For the sake of time, let’s just say with the first home the asshole general contractor
screwed me! Nonetheless, I learned a very valuable lesson and that is to believe only what my eyes can
see and not what someone tells me – regardless of their credentials!
The second time around the contract with my GC called for a flat fee plus expenses including labor,
materials, permits etc. In addition, I required that I be able to review every invoice and time sheet. Of
course, I didn’t have the time to thoroughly review every single invoice so I randomly selected 5 – 10 per
week dependent upon the quantity of bills being paid.
Costs which exceeded the agreed upon budget were deducted from the GC’s fee, prompted a deeper
look and triggered a penalty. I also included a financial penalty if construction went beyond the move in
date. Finally, I hired a third-party to systematically inspect the quality of work.
Cost of PBM Services = AF (Administrative Fees) + MR (Manufacturer Revenue) + SP (Spreads)
Here’s my point. YOU built the house [business]; YOU compensate the employees and pay for their
benefits not the PBM so why should they dictate terms? YOUR PBM is the GC and YOU are the
homeowner. Take control of YOUR pharmacy benefit and don’t settle for less than a fiduciary standard
or YOU will pay a heavy price.
ABOUT THE AUTHOR
This report was authored by Tyrone D. Squires. Mr. Squires has been in the PBM, managed care and
pharmacy industries for 12 years. He has started and operated PBMs, business process outsourcing

2015
firms, retail and mail-order pharmacies. Over the years his clients include a diverse group of health
insurance carriers, HMOs, TPAs, and self-insured employers.
Presently, he serves as Founder and Managing Director of TransparentRx a fiduciary pharmacy benefits
manager. In addition Mr. Squires performs consulting assignments and operational reviews, affects
mergers and acquisitions, raises capital, designs products, assists in business development, and
establishes channels of distribution for emerging products, services, and technologies.
Mr. Squires is author of the blog, “The Payor’s Guide to Managing Pharmacy Costs” and has written
several white papers on pharmacy benefits cost containment techniques. Mr. Squires can be reached at
TransparentRx’s office in Henderson, Nevada at 775.432.6262 or www.linkedin.com/in/TyroneSquires.
References
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management industry through regulation. Ann Health Law. 2011; 20(1):77-112.
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management. International Journal of Physical Distribution & Logistics Management. 2011;41(6):601-
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3. PBM compensation and fee disclosure. ERISA Advisory Council. US Department of Labor website.
http://www.dol.gov/ebsa/publications/2014issuestatement1.html. Accessed June 11, 2015.
4. Calabrese, David RPh, MHP. Comparing Pharmacy Benefit Managers: Moving Well Beyond theSimple
Spreadsheet. [AHDB.2008;1(5):9-19.] www.AHDBonline.com.
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6. Garis RI, Clark BE, Siracuse MV. Is the pharmacy benefit manager truly transparent? 2006; August.
7. Garis RI, Clark BE. The spread: pilot study of an undocumented source of pharmacy benefit manager
revenue. J Am Pharm Assoc. 2004; 44:15-21.
8. PBM earnings reflect mail revenues, generic utilization. Drug Benefit News. November 12, 2004;5:4
9. Stevenson J, Bruhnsen K,. Strategies to Improve PBM Management of an Employee Prescription Drug
February 2015.
10. Carroll NV, Brusilovsky I, York B, et al. Comparison of costs of community and mail service pharmacy.
J Am Pharm Assoc (2003). 2005;45:336-343.
11. Garis RI, Bramble JD, Rea M, et al. Evaluating the costs of brand name and generic prescriptions
dispensed by mail versus retail. Drug Benefit Trends. 2007;19:15-19.
12. Martinez B. Selling generic drugs by mail turns into lucrative business. Wall Street Journal. May 9,
2006.
13. 2013 Drug Trend Report. Express Scripts website. http://lab.express-scripts. com/drug-trend-report.
Published April 8, 2014.
14. National Health Expenditure Projections 2013-2023: Forecast Summary. CMS website.
http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and
Reports/NationalHealthExpendData/Downloads/Proj2013.pdf. Accessed June 8, 2015.

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