Why Pharmacy Coalitions Aren’t the Ideal Option for Hospitals

When searching for the optimal type of pharmacy benefits arrangement for self-funded employers, it’s important to consider how the employer’s objectives align with the pharmacy benefits provider. This is even more critical to evaluate for hospitals and health systems, which function as both employers and healthcare providers. They have distinct needs compared to other employers: to manage a rich but affordable benefit program while providing top-tier service a membership deeply rooted in the healthcare field.

In this blog, I’ll discuss what to know when considering a pharmacy coalition as your hospital clients’ pharmacy benefits provider. These key considerations comprise three main aspects of the pharmacy arrangement: contract competitiveness, channel-agnostic clinical management, and world-class member service for groups of all sizes.

Pharmacy Coalition Contract Competitiveness

Pharmacy coalitions function as a Group Purchasing Organization (GPO) in that they aggregate members to gain pricing and rebate negotiating strength. While this is a good strategy to attain stronger market purchasing power, coalitions apportion the pharmacy rates and savings they receive to their clients on a tiered pricing structure. This means that the largest employers getting the most competitive deals. Hospitals who don’t meet certain size thresholds will not receive the best pricing.

Coalitions also typically offer three-year pharmacy benefit contracts, which are subject to becoming stale after year one. Long-term arrangements are known to provide deep discounts and savings in the first year, but in subsequent years, the pricing flips to the coalition’s advantage. Pharmacy benefit coalition contracts also lack transparency and auditability. Language in the contract prevents the hospital from having insight into the coalition’s pharmacy benefit manager (PBM) contract terms that are critical to understanding how the pharmacy benefits contract will perform. This includes visibility into areas such as drug exclusions, rebate terms, specialty guarantees, and clinical decision processes.

When searching for the optimal type of pharmacy benefits management arrangement for self-funded hospital employers, it’s important to consider how the group’s objectives align with the pharmacy benefits provider. Here’s what to know when considering a pharmacy coalition for your hospital clients’ pharmacy benefits program.

Robert Lewis

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Heavy Reliance on PBM Clinical Management

By nature, pharmacy coalitions rely on the PBM to provide plan sponsors with clinical utilization management programs. This is problematic because of the inherent misalignment of pharmacy incentives between the PBM and pharmaceutical manufacturers. For one, because PBMs negotiate drug rebates with pharma, the flow of drug rebates from pharma to the PBM creates a tremendous financial misalignment between the hospital’s cost controls and the PBM’s profitability. There are numerous examples where plan sponsors pay higher costs resulting from Low Clinical Value Drugs on the formulary, or where an automated prior authorization (PA) process skips over fact-checking of a member’s chart notes before rending an approval.

Consider this: a PBM authorized a PA for a specialty medication on their formulary to be filled by their mail-order pharmacy, even though a lower-cost alternative was available. The PBM received a share of the rebate and revenue from the pharmacy fill, while the plan sponsor paid a higher-than-necessary cost. For hospitals under extreme financial strain – which already see higher utilization of costly brand-name drugs than other employers and that may have their own in-house pharmacies to utilize as a first-choice fill option – the PBM channel conflict could be devastating.

Additionally, PBMs don’t invest the technology and expertise mid-size plan sponsors need to understand and address their prescription drug risk areas. The lack of data-driven insights and targeted recommendations prevents the hospitals from knowing what is driving their drug trend. They also lack tailored clinical oversight that could help them confirm medical necessity and clinical appropriateness of covered medications while controlling costs. Where is the coalition in all of this? The coalition’s hands are tied; it is unable to provide the pharmacy expertise, nor can it deliver any level of PBM protection for the employer.

Commoditized Customer Service Experience

As I mentioned, coalitions aggregate membership to gain a pricing advantage, but coalitions lack many of the critical components needed to provide an optimized service solution – namely data connectivity, technology, human capital, clinical expertise, and member services. Instead, plan sponsors are forced to use the coalition’s delegated service model. Members are pushed back to the PBM for detailed pharmacy benefits service.

Unfortunately for mid-size plan sponsors, PBMs work at scale and focus their best resources on their largest clients (Government, Health Plans, and Fortune 100 employers). The balance of their business, hospital groups included, receive a highly commoditized customer and member experience driven by multiple automated systems. This often results in a disenfranchised experience, with minimal access and oversight to resolve member or client issues – similar to a standard carve-in solution, not what is expected of a specialized pharmacy carve-out.

PBOs: A Better Option for Hospitals

Without an optimal pharmacy benefits contract and appropriate clinical oversight, hospital plan sponsors are put at a significant disadvantage in a pharmacy coalition contract. Being locked in long-term to a pharmacy benefits contract that lacks transparency makes it harder for them to shop rates and actively manage the plan’s prescription drug cost drivers. Fortunately, there is a better pharmacy benefits option for hospitals on the market today. As a Pharmacy Benefits Optimizer (PBO), RxBenefits operates independently of Big Pharma and provides a host of channel-agnostic clinical programs, including independent PA review, formulary management, High Dollar Claim Review, and Manufacturer Copay Assistance Programs that align directly with the plan sponsor’s goals.

RxBenefits has made a significant data analytics investment in providing detailed clinical insights, targeted recommendations, and cost controls as a standard part of our tailored clinical solution. Unlike a coalition, RxBenefits manages all the contracting, connectivity, clinical management, and client and member-facing support services. Unlike a pharmacy coalition or PBM, RxBenefits offers all plan sponsors the same pricing, regardless of their membership size, the best rebates, pricing, and terms.

RxBenefits only uses one-year agreements which are refreshed twice each year. This provides our clients with the best pricing and rebates available year over year. RxBenefits provides a client-friendly contract with clean terms, discounts, and rebate guarantees – which is auditable and marketable annually. We also provide quarterly and annual performance reviews, retrospective repricing, and in-depth claim and clinical analysis.

Unlike a PBM or coalition, RxBenefits also provides a world-class member experience, customized disruption communications, 1-800 numbers, and access to two in-house Client and Member Services teams to address client and member issues in a timely manner. It’s this level of service, while also acting as an independent reviewer, that positions the PBO model as the optimal pharmacy benefits advocate for the client and their best interests, not the PBM’s or drug manufacturer’s.

Learn more about the PBO model and how it works to support self-funded employers, including hospitals. Download our free Definitive Guide to Optimizing Pharmacy Benefits.