When every dollar counts, how can the modern pharmacy industry help organizations save money?

Author: Seth Friedman


Today's pharmaceutical supply chain is very complex. It's no longer your grandfather's pharmacy that consisted of drug manufacturers who sent their product to a wholesaler, that sent it to a retailer, that delivered it to a patient. The modern pharmaceutical supply chain is here and continues to evolve, making it more circuitous for patients, payers and providers.

Knowing the burden organizations are facing to stay on top of this evolution, Seth Friedman, practice leader of Gallagher's Pharmacy Benefit Management Consulting practice, held a session titled "Not Your Grandfather's Pharmacy" at the International Foundation of Employee Benefit Plans (IFEBP) Conference. Seth and Hannan Allen, Gallagher's area senior vice president of Business Development, spoke about how the pharmacy-benefits supply chain has changed quite a bit over the years and some of the solutions organizations have leaned into to manage drug costs without compromising patient care.

Here are five considerations that PBMs are thinking about these days to optimize healthcare costs:

1. Alternative funding

This solution to manage costs was developed in 1990 in response to public concern about high drug price inflation. The result was a commitment from manufacturers to help patients afford expensive medications, specifically specialty medications. Further, although specialty medications are making up 50% of an organization's costs, Seth has observed that only 2 to 3% of your population is using them. Alternative funding is a great place for organizations, such as unions, to focus on as a strategic way to manage costs.

Additionally, patient assistance programs (PAPs) are a way to distribute prescription drugs to individuals through the pharmacy's own 501C organization, often set up as private foundations. According to the Foundation Center (now Candid), pharmaceutical PAPs accounted for 7 of the 10 largest grant-making foundations in 2015, as ranked by annual giving. PAPs provide drugs to uninsured individuals and to people enrolled in private insurance and public health programs.

Consumer eligibility assistance criteria vary among PAPs and generally appear to be based on annual income, insurance status, physician endorsement, prescription information and proof of U.S. citizenship or legal residence.

2. Prescription digital therapeutics (PDTs)

Telemedicine gained traction during the height of the pandemic, but it also set a precedent for the future of medicine. PDTs are a type of digital therapeutic, which is tested for safety and efficacy in randomized clinical trials, is evaluated by the FDA, and has to be prescribed by a healthcare provider. With the emergence of PDTs, patients can use software that leverages technological advancements to address gaps in care — thus supporting safer and more clinically effective methods to prevent, manage and treat diseases across multiple therapeutic classes.

Take a deeper dive into the innovation of PDTs, as well as how they affect benefit plan designs with Gallagher's white paper, "Digital Health: Assessing Prescription Digital Therapeutics."

3. Point solutions

Point solutions are ways to manage costs while also providing enhanced patient care. Point solutions didn't exist five years ago — they truly inserted themselves into the supply chain and frankly are an innovative channel to manage costs. Using these new tools can help provide better patient care, lower overall healthcare costs and drive better satisfaction with the overall healthcare benefit.

4. New entrants

The pharmaceutical industry has consolidated quite a bit — the top three PBMs account for about 80% of the market. Ironically, this consolidation created more competition, as new entrants look to manage the PBM in a different way — for better or for worse. New entrants can truly be a differentiator.

5. Values-based and outcomes-based contracting

This strategy is vendor contracting at a drug- or therapeutic-class level, based on value or outcomes, with a direct correlation to price/rebate. The two differ in that value-based contracting is the price paid based on the value of the drugs, whereas outcomes-based contracting is a price or refund based on the result. Typically, these contracting options include medication therapy, drug management and patient support, with a focus on high-cost therapies. Values-based and outcomes-based payment models differ by contracting entity, but both have some type of shared savings model.

The challenges with this strategy can include:

  • Finding the right drug for contracting purposes
  • Contracting with partners
  • Administering the collection of information and reconciling to contractual terms and conditions
  • Agreement on design and measurements
  • Membership stability

Key takeaways

  • When thinking about managing specialty drug costs, it's imperative to look beyond the pharmacy benefit. Close to 50% of your specialty spend sits in the medical benefit.
  • There's not always value in moving drugs from the medical benefit to the pharmacy benefit. Don't just take your PBM's word for it — do your homework.
  • Hold your medical carrier accountable for being proactive in the management of these drugs and spend more time talking to them about how they are helping.
  • Alternative funding may finally be a catalyst to reducing specialty drug spend; however, there are many considerations to weigh.
  • Value-based or outcomes-based contracting can lead to improved outcomes and lower costs.
  • Additional benefit layers add complexity to the patience experience.

No matter how organizations choose to manage their costs, Seth's most important suggestion is to always keep the patient in mind. Yes, the pharmaceutical supply chain has gotten complex, but organizations must think about simplifying the patient experience so it doesn't become so confusing that patients become lost on the best ways to seek care for their health needs.

Optimizing healthcare costs is a critical component of any organization's benefits plan, and a new breed of PBMs is delivering the value. As you approach this topic, keep in mind what you should be expecting, because the new PBMs entrants and other vendors may offer innovative solutions.

Author Information


Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as "Gallagher Benefit Services of California Insurance Services" and in Massachusetts as "Gallagher Benefit Insurance Services." Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.