About time: Employers start to clue in to the PBM business model

The Wall Street Journal (Employers Join to Push Drug Managers for Full Disclosure) reports that a group of 52 employers is banding together to push their pharmaceutical benefit managers (PBMs)

to disclose and pass on to their clients acquisition costs for retail and mail-order prescriptions. Moreover, the group wants PBMs to pass along the rebates, rarely disclosed, that they receive from drug manufacturers

It’s been an open secret in the industry that big employers often pay more for prescriptions than value conscious individual cash buyers. For example, I’ve written about the PBM business model and the push for transparency here and here. GM, one of the biggest suckers, overpaid its PBMs by millions and millions of dollars for many years before starting to wake up. It’s ironic, considering that GM and its peers insist on total disclosure of the economics of their parts suppliers in order to squeeze costs and profits.

Transparency and straightforward business practices are a good thing. The result is increased efficiency and reduced administrative burden as suppliers focus on delivering real value for their customers rather than playing secret games. Traditional PBMs are resisting the push to transparency, creating an opening for secondary players and new entrants not addicted to the current system.

August 10, 2005

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