The tactic, also know as “step therapy,” may actually end up causing more pain than relief in the long run, according to recent study.

Here’s why: Often times, workers will get a prescriptions for generic drugs only to find that the generic drug isn’t covered and/or it costs more than expected. In many of these cases, people will  leave medically necessary prescriptions unfilled. The result: A greater number of trips to the doctor for these staffers — at your expense.

As for the workers that get these uncovered scripts filled? They’re paying $99 more each quarter than employees who don’t use “step therapy” — not exactly the best way to boost benefits satisfaction among staffers.

To prevent these problems, experts suggest making sure your plan’s doctors and physicians understand all step-therapy requirements, so you and your employees aren’t shocked by any unexpected — and costly — developments down the line.

It’s easy to feel like your PBM holds all the power over you. In most cases, it does.

A landmark 2004 study compared what pharmacy benefits managers (PBMs) charge employers’ plans to what they actually pay pharmacies. Researchers found staggering overcharges – especially for generic drugs. Unfortunately, four years later, the situation has scarcely changed. All too often, PBMs improve their own bottom line at the expense of the plan sponsor’s.

Chances are, it’s your health insurance vendor – not yourself – who contracts with the PBM to administer the prescription drug portion of your health benefits. So how can you feel confident your firm is getting the best value and service? Start by asking your health-plan broker these four questions about the current or prospective PBM.

1. How does the PBM calculate price?

Many PBMs gain hidden profits off your plan through a practice called “differential pricing,” says consultant Gerry Purcell. In other words, the PBM pays one price to drug retailers and then sets a lesser discount off the average wholesale price (AWP) for your company’s plan. Example:

• the PBM pays the drugstore the AWP minus 18%
• your plan and employees pay AWP minus 15% for meds, and
• the PBM pockets the difference.

Now for some good news. You do have some leverage in this area. If your drug plan is covered under the ERISA umbrella, the PBM must disclose this info. Ideally, you’ll find the rates are the same on both contracts. But if there’s differential pricing, insist your firm get the full discount.

2. What’s the PMPM?

One key cost figure PBMs can’t manipulate is the per-member-per-month (PMPM) cost of your plan. This number will show if your plan’s costs actually increased or decreased. The PMPM is calculated by dividing the total costs spent by the number of employees enrolled in the drug plan.

It’s also a great tool for comparing different PBMs to see which is the most cost-efficient for the size of your organization, says Peter Reed of Managed Benefits Strategies.

3. Can we get rebates, too?

Some PBMs receive money from drug companies that your brokers won’t tell you about – but may be able to leverage to your plan’s advantage. Example: Many PBMs get rebate checks from drug companies (typically 50 cents to $1.25 per claim) for helping increase the sales of their products.

If you push hard enough for it, your broker may able to work an arrangement where you either:

• split rebates from your plan evenly, or
• let the PBM keep the entire rebate in exchange for a price break on administrative fees.

Important: Ask to find out all the payment types the PBM gets from the drug firms. Rebates are often couched in the form of grants or classified as access fees or formulary fees.

4. How do changes in the formulary work?

In most states, PBMs can change your plan’s list of approved medications without prior notice.
The problem: PBMs often make mid-year switches that save them money, but may not save your organization or employees a dime.

Example: If the PBM adopts a mail-order-only coverage policy on a certain formulary drug, an employee who needs same-day access to the medication may be forced to pay full price for it at a pharmacy. Meanwhile, your plan is still charged the formulary price.To avoid such unpleasant surprises, insist the PBM give written notice of formulary changes, including the addition of new generics.

As with many benefits-related reform movements, the push is found mostly at the state level. Most recently, the New York Assembly introduced a bill (A6341) to regulate PBMs.

Supporters of the bill say that the PBM industry is a multi-billion dollar business yet it’s one of the few areas of health care that operates with few regulations. As a result, many PBM practices are kept secret even from their clients with prescription plans.

There have been accusations of PBMs paying pharmacies one price, billing plan sponsers for a higher price and then pocketing the difference – even though the PBM is supposed to make its money by administering drug benefits (and keeping costs down) for the plan sponsor.

One of the nation’s biggest PBMs, CVS Caremark was the subject of a scathing investigation. The PBM vehemently denies the alleged wrongdoings.

In times like these, it’s crucial for colleagues to share their concerns, experiences suggestions. A few weeks ago, HRBenefitsAlert.com ran a special report on calming employees’ 401(k) fears. The reader comments revealed that many benefits pros were just as afraid as employees, and people’s frustration led to some unfortunate carping back and forth between several readers.

The purpose of the comments section, apart from giving people the opportunity to react to the story, is to provide a forum for benefits managers to interact. It’s my hope that we can generate an exchange ideas that have (and have not) been working at readers’ companies during the current situation. Specifically:

• What are you doing to manage health benefits costs as budgets are either frozen or shrink?
• Have you noticed a dip in morale or productivity with all the doom-and-gloom in the news?
• How is your company trying to calm employees’ fears about salary freezes or layoffs, 401(k) losses, health cost shifting and other issues that get a lot of mainstream media focus?
• What are you saying to employees to deliver the news they need to know but also keep morale high?

Thank you in advance for your willingness to share your expertise and personal experiences. Everyone benefits in the long run.