Merck - Medco

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1. Pharmacy Benefit Management

Pharmacy benefit managers (PBMs) are companies that administer drug benefit programs for employers and health insurance carriers. PBMs contract with managed care organizations, self-insured employers, insurance companies, unions, Medicaid and Medicare managed care plans, the Federal Employees Health Benefits Program and other federal, state, and local government entities to provide managed prescription drug benefits.

They designed the pharmacy benefit plan, processed prescription drug claims, reviewed prescriptions, encouraged the use of lower cost, generic and branded drugs and dispensed drugs through mail service pharmacies. Essentially, PBMs reduced the cost of health care by improving efficiency of the usage of prescription drugs without compromising with the quality of patient care.

Initially, PBMs focused on claims processing. Later, they looked at various other ways to control costs. They negotiated big discounts with pharmacy networks and branded drugs manufacturers. PBMs also analyzed the usage of drugs by patients and did not hesitate to contact doctors if they felt that inappropriate drugs had been prescribed. When an enrollee presented a prescription, the PBM’s information system determined whether there was a cheaper alternative. The pharmacist was provided the alternatives on the screen. Physicians and pharmacists fell in line because the PBMs represented big clients and gave them large volumes of business.

PBMs also saw an opportunity to cut costs through disease management. They educated patients and physicians on measures to be taken to prevent diseases wherever possible. PBMs worked with patients to make them accept good health practices. They stayed in touch with patients through newsletters and information hotlines.

2. Relationship between Pharma & PBMs:

Pharmacy benefit managers (PBMs) are private companies that administer pharmacy benefits and manage the purchasing, dispensing and reimbursing of prescription drugs. PBMs provide their services to health insurers or to large health care purchasers such as public employee systems, other government agencies and labor union trust funds. PBM services to their clients may include negotiating rebates or discounts from pharmaceutical manufacturers, processing claims for prescription drugs and negotiating price discounts from retail pharmacies. PBMs also develop formularies and manage utilization of drugs through prior authorization or utilization reviews.

Manufacturers are the source of the prescription drugs in the pharmaceutical supply chain. Manufacturers manage the actual distribution of drugs from manufacturing facilities to drug wholesalers, and in some cases, directly to retail pharmacy chains, mail-order and specialty pharmacies, hospital chains, and some health plans. Manufacturers may also distribute products directly to customers through PBMs.

PBMs have become an integral part of most consumer drug purchases. PBMs work with third party payers to manage consumer drug purchases by defining which drugs will be paid for and the amounts that the pharmacy will receive and the consumer must pay out-of-pocket when the prescription is filled.

- PBMs use formularies to negotiate deeper price discounts with manufacturers, set cost-sharing levels to influence beneficiary utilization rates, and encourage beneficiaries to use a mix of preferred or lower-cost covered products. - PBMs negotiate with pharmaceutical manufacturers for rebates on products selected for the formulary. Rebate amounts are based on the contracts negotiated between the PBM and plan sponsors and the PBM and manufacturers. Typically, contracts are structured so that PBMs retain a portion of the rebate in exchange for developing the formulary and negotiating with manufacturers.

As discussed above, the relationship between manufacturers and PBMs is centered around inclusion of a drug on a plan’s formulary and...
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