Education

Unraveling PBM Complexity: Transparent vs. 100% Pass-Through Contracts

Written by

SmithRx

February 27, 2024

Traditional PBMs have a bad rap– and it's not hard to understand why. They're secretive about how they set prices, hide behind complex rebate systems, and favor certain drugs over others for their own financial gain. This lack of transparency can make it hard for employers and patients alike to know if they're getting a fair deal on medications and has led to concerns about the skyrocketing costs of prescription drugs.

Amidst the questionable practices of these industry behemoths, however, there exists a subset of PBMs – the "good guys" – who operate with transparency and a commitment to pass-through models. Recognizing the distinction between these ethical PBMs and the rest is crucial, especially considering that traditional PBMs may attempt to disguise themselves as such. Let’s delve deeper into what sets these ethical PBMs apart and why understanding their principles is essential for navigating the complex landscape of pharmacy benefit management.

Good-Guy PBM Operations: Transparency vs. Pass-Through

To start, let's clarify the distinction between transparent and pass-through. While often used interchangeably, they represent two distinct aspects of PBM operations. 

Pass-through PBMs

To be a pass-through PBM means to directly transfer pharmacy fees and rebates to the client or patient without any additional markups or intermediaries. The emphasis here is on the direct flow of financial benefits to the end recipient.

Example: 

Let's say a company, ABC Corporation, partners with a pass-through PBM for their employee health benefits. As part of their agreement, the PBM negotiates discounts with pharmacies and pharmaceutical manufacturers on behalf of ABC Corporation's employees.

When an employee fills a prescription at a pharmacy, the pharmacy charges the negotiated discounted price for the medication. The pass-through PBM then reimburses the pharmacy for the medication cost and any applicable dispensing fees. Importantly, the pass-through PBM does not add any additional fees or markups to the cost of the medication.

Additionally, if the PBM receives any rebates from pharmaceutical manufacturers based on the medications dispensed to ABC Corporation's employees, these rebates are fully passed through to ABC Corporation. This means that ABC Corporation receives the full benefit of any rebates earned, rather than the PBM retaining a portion of the rebate as profit.

Transparent PBMs

Transparency refers to the degree of openness and clarity in how a PBM conducts its business. It encompasses the full disclosure of information related to pricing, fees, rebate arrangements, and other financial aspects. 

Example: 

ABC Corporation partners with a transparent PBM to manage pharmacy benefits for its employees. In this scenario, it receives:

Open Access to Information: ABC Corporation and its employees have full access to detailed information about the pricing structures, fees, and rebate arrangements negotiated by the PBM. This includes clear documentation of the PBM's administrative fees and any revenue earned through rebate programs.

Full Disclosure of Rebates: Whenever the PBM negotiates rebates with pharmaceutical manufacturers, ABC Corporation is promptly informed about the terms and amounts of these rebates.

Transparent Pricing: When employees fill prescriptions at pharmacies, they are charged the negotiated discounted prices for medications. The PBM clearly outlines these prices, ensuring that employees understand the costs associated with their medications and any potential cost-saving opportunities.

No Hidden Fees: The PBM operates with integrity, refraining from adding hidden markups or fees to the cost of medications or pharmacy services. ABC Corporation and its employees can trust that the pricing they see reflects the true cost of their pharmacy benefits.

PBM Deception with Partial Transparency, Partial Pass-Through

Unfortunately, some PBMs may employ several tactics to appear transparent or pass-through while still maintaining aspects of opacity or non-pass-through practices. One common strategy is to provide clients with some level of access to data or information, such as claims data or pricing structures, giving the impression of transparency. However, this data may be selectively presented or lacking in crucial details, obscuring the full picture of PBM operations and potential conflicts of interest.

Similarly, PBMs may claim to operate on a pass-through model, where they pass pharmacy fees and rebates directly to clients without any markup. However, they may still engage in practices that undermine true pass-through, such as retaining certain rebates or implementing hidden fees. This can create the illusion of pass-through while still allowing PBMs to profit from undisclosed sources.

In short, PBMs may use surface-level transparency measures or partial pass-through practices to create the appearance of openness and fairness while maintaining elements of opacity and non-pass-through arrangements behind the scenes. It's essential for clients to scrutinize the details of PBM contracts and operations to ensure true transparency and pass-through are being upheld.

SmithRx's Commitment to Clear and Honest PBM Services

At SmithRx, we’re dedicated to providing both transparent and pass-through PBM services. 

Transparency is at the core of our operations, as we believe our clients deserve complete visibility into how their pharmacy benefits are managed. We achieve this by offering detailed insights into every aspect of our services, including clear documentation of pricing structures, fee breakdowns, and rebate arrangements. Our clients have access to comprehensive information, empowering them to make informed decisions about their healthcare.

In addition to transparency, our commitment to pass-through ensures that our clients receive the full benefit of their pharmacy spend. We don't believe in hidden markups or intermediaries taking a cut of the savings we negotiate on behalf of our clients. Instead, every discount and rebate is passed directly back to our clients, maximizing cost savings and promoting trust. This means that our clients can rest assured knowing that every dollar saved through our negotiations goes directly back to them, helping to alleviate the financial burden of prescription drugs.

By upholding these principles of transparency and pass-through, we set ourselves apart as a trusted partner in pharmacy benefit management. Our clients can rely on us to prioritize their best interests, providing them with the clarity and value they deserve

On average, SmithRx clients save 30% or more on pharmacy spend and realize increasing savings over time. Find out how much you can save here.

Written by

SmithRx

A new type of pharmacy benefits manager, SmithRx is working to reduce pharmacy costs by reimagining the traditional PBM as a Drug Acquisition Platform built on transparent modern technology that aligns with the needs of our customers.