If your Pharmacy Benefit Manager (PBM) is not being transparent with their pricing, your goals and incentives are not aligned.

The typical “Spread Pricing” model offered by most PBMs in the workers’ compensation industry is severely lacking in transparency. In fact, this model puts the client savings in an adverse position to the PBM’s pricing goal. This issue was so evident to the group health market that in 2009, the Centers for Medicare and Medicaid Services declared that a pass- through pricing model must be used to price and report on Medicare Part D contracts.

So how do most workers’ compensation PBMs make their money and why should you be weary of a non- transparent spread pricing model? Typically, PBMs have negotiated steep discounted prescription purchase rates and rebates with their pharmacy networks which are not disclosed to their clients. They then charge their clients using a percent discount off a benchmark called “average wholesale price” or AWP. This is reflected as AWP minus X% for brand name medications and a separate discount percentage for Generics. However, the AWP is basically the pharmaceutical equivalent to a vehicle’s MSRP or “sticker price”. Meaning the AWP is an elevated drug price that rarely corresponds to what was actually paid.

The PBM earns its margins from the “spread” between its charged percentage off AWP plus a chosen dispense fee and their actual reimbursement cost to the pharmacy.

In addition, the PBM has negotiated rebates for brand name medications paid by drug manufacturers that are rarely disclosed to their clients. This model potentially incentivizes the PBM to minimize the discount provided to their clients to maximize their profits. In addition, not disclosing the PBM’s rebates on brand name medications could actually encourage a higher percentage of brands to be filled than may be necessary.

AWPRx is proud to offer our clients true transparent pricing models. Whether you prefer cost plus or spread pricing, we disclose all sources of income (including rebates). You will see our margins and what the pricing equivalent is throughout each model. This ensures our goals are properly aligned while providing you with the best pricing to fit your needs.

Even when PBMs present transparent pricing models, the admin fee is only one part of the overall cost to a program. PBMs will have different acquisition costs, different generic dispensing ratios and different utilization rates. So a match on admin fee does not mean you are being offered the same program cost. Contact your AWPRx representative for a free analysis of your current pharmacy risk and expenditures.