AH010 - The Power of PMPM: Holding PBMs Accountable for Total Drug Spend, with Kristin Begley, PharmD

March 22, 2024

Capital Rx

In this episode of the Astonishing Healthcare podcast, Justin Venneri and Kristen Begley, PharmD, Chief Commercial Officer at Capital Rx, discuss per member per month (PMPM) cost and why it plays a crucial role in healthcare, particularly in pharmacy benefit management. PMPM guarantees help hold pharmacy benefit managers (PBMs) accountable for total drug spend. The PMPM calculation provides a simplified way to evaluate drug spend by dividing the total plan spend by the number of members. This enables plan sponsors and other industry professionals to easily assess the value and effectiveness of their vendors and predict future costs.

Furthermore, PMPM guarantees prompt PBMs to act in the best interest of both the plan sponsor and the members, ensuring the selection of the most appropriate, cost-effective drugs, for example. Drug mix, formulary decisions, prior authorizations, and clinical programs also strongly influence PMPM and should be carefully considered. Last, Kristin shares the most astonishing thing she's seen, and it's amazing how costly the things people can miss are. Listen below, and don't forget to subscribe on Apple, Spotify, or YouTube Music!


Lightly edited for clarity.

Justin Venneri: Hello and thank you for listening to this episode of the Astonishing Healthcare podcast. I'm Justin Venneri, Director of Communications at Capital Rx, and I'm excited to have Capital Rx Chief Commercial Officer, Kristen Begley, a pharmacist by training and a champion of PMPM, with us today to talk about per member per month costs and how we should be thinking about that. Kristen, thank you so much for joining us today.

Kristin Begley, PharmD: Thank you for having me. This has been my passion for many years inside this industry.

[00:56] Justin Venneri: Why don't we start off with just a little bit more about your background and then we can jump into some of the questions.

Kristin Begley, PharmD: Perfect. My background is as a pharmacist. I started out in a residency in managed care, and then I moved over to what would be considered the “big three” consulting firms, really focused on Fortune 500 procurement audit plan design strategy. From there, I jumped into the software side of things because I realized we needed to be more efficient. CFOs check how much their paper clips cost, right? And somehow prescription drugs weren't getting that level of scrutiny when they were procuring or doing RFPs. And again, back then, prescription drugs were anywhere between five and 10% of total drug spend. So, I jumped over to try to help other consultants build software and tools where they could really nail a PBM down and have a solid contract. The best contracts you could procure.  

During my tenure at that software company, I realized it was so much more than the discounts and rebates. And yes, you had to get a good contract. You didn't want to have a five- or six-year-old contract because the world moves quickly in the pharmacy space. But mainly it was those 3% of drugs, the specialty drugs, that were starting to drive so much of total spend. At first it was 20%, and then 30%. And as you all know, if you're listening to this podcast today, it's somewhere around 50% or more of your total spend on only 3% of drugs. So, I knew that our historic way of collecting differences between vendors and the RFP process wasn't really driving value.  

I really believe that PMPM is a much simpler way to decide, how much am I spending next year? What did I spend last year? was the way to hold PBMs accountable to total drug spend. And we'll dive into that. We'll kind of keep it high level today, not too geeky. Really excited about that.

[02:47] Justin Venneri: And you left the industry for a bit, right? Where did you go?

Kristin Begley, PharmD: I did. I went into women's health. I've always had a passion for value-based care on the medical and the pharmacy side. So, I left the industry when I was a little frustrated with how PMPM was constructed where I went. And I felt like there were still optics that could be played with PMPM deals, especially if you have shared savings. So, I left the industry and focused on women's health selling between health plans, health systems, and some direct Fortune 500, which was a really exciting, fun time. And I got to stretch my value-based care wings, which is really critical to PMPM in the future, and making sure that you're getting the best cost with the best outcome for patients.

[03:30] Justin Venneri: That makes sense. Okay, well, we're glad you came back to the PBM industry. Okay, so you've always been a champion of PMPM. You've written about it. We'll share some links in the show notes to our articles. And we have a PMPM playbook, as we call it sometimes. So those resources will be available in the show notes. Per member per month guarantees seem to be becoming a little bit more in vogue. If that's fair, I'd love to just understand or have you explain why is this such an important measure?

Related Content - PMPM in Pharmacy Procurement

Kristin Begley, PharmD: Well, I think there's a few reasons. First off, the Consolidated Appropriations Act of 2021 -- there really was duty placed onto plan sponsors, Taft Hartley, employers, etc., that they ensured that the selection of their healthcare vendors and other service providers was very process driven and ultimately drove good value for the employee. We all know healthcare is ballooning so much that it's eating into the pay raises people could have. I really believe that this will be very similar to the 401K lawsuits in the early 2000s that still continue today. Most of the people listening to this podcast will know there was a recent major employer that was sued by their employees for not being a good fiduciary of procurement in the PBM space.  

So, first and foremost, we have accountability, and there's a light on the pharmacy and health insurer industry in general. So unfortunately for plan sponsors, and I say that holistically, it's been really difficult.  Most, I think, plan sponsors, HR, will feel like it's pulling teeth to get their vendors to be transparent. And so PMPM cuts to the chase. Anybody can look back at -- what did I spend in aggregate last year on pharmacy expenditure net of rebates and divide it by total membership. So, the fact that a fifth grader can do the math, you can then ask your vendors when you're in a procurement process to give a PMPM in the future. It just makes it a lot easier.

And what that really provides is the fact that the PBM is now accountable for their formulary decisions. Are they low net cost or are they driving more expensive drugs to earn a big rebate? Are they approving too many drugs? Are they maximizing generic discounts? Or are they maximizing their aggregate effective rate?  

So, when you're a PBM, if someone's holding you accountable to a total spend number, you act in alignment or in the best interest of not only the client being the plan sponsor, but also the member. Because it is a lot about safety. You don't want to be one of the members that tries a new drug if less than 3% of the population has taken it. You want a drug that's tried and true, that millions of people have tried. It's a little bit of a safety mechanism, also, that you're trying older generation products to start, and then you're moving up the tiers, if it's required.

[06:38] Justin Venneri: So that per member per month calculation, the fifth-grade math, is it that simple? That it's just total plan spend? Like what goes into that? And then you're dividing that by the denominator, which is total number of members? Or is it the average per month? Or how does that normally calculate it? And how do you like to calculate it?

[06:57] Kristin Begley, PharmD: The simpler you keep your PMPM calculation, the better. The last thing you want to do is separate, say traditional drugs and get a PMPM of that from specialty drugs. You want one aggregate bucket of all claims cost, net of rebates divided by total membership. It is important though, when you're asking for per member per month guarantees that you give the vendor any potential plan design changes or major changes in population. They need to know that. And they also need to know, what your plan design was associated to, preferably, two years of claims data, so they can see your trend.

[07:36] Justin Venneri: Got it. And then assuming that all that data is provided, and the numbers are crunched, what are, in your experience, some of the ways a plan sponsor or someone analyzing the data can tell if they've got a good PMPM or a bad PMPM – if there is such a thing.

Kristin Begley, PharmD: Well, it's all based on their population, right? If you have an older population using more medications, you have to look at the previous year. And I think the ultimate judgment on what should your drug spend be, what should your PMPM be, is up to competitive forces.  

I think the way to tell if you have a good PMPM offer or a bad PMPM offer is to take it to market, right? You're going to provide your historical claims data, and maybe you are at $100 PMPM, maybe you're higher than that. But when you let the natural competitive forces of different vendors say, well, based on my formulary, based on my clinical programs, this is where your PMPM is going to be under my management, because it's a pharmacy benefit manager and we haven't really held them very accountable to being managers. I think that's where you really figure out where does the rubber meet the road, right? Who's going to be a good steward of my dollars, keeping costs down for members and keeping costs down for me, making it more affordable so that I can give those pay raises in the future and provide a competitive health care benefit with amazing service, too.  

So again, it's really about the market dynamics. Each employer we look at comes with different utilization and mix. And we assess, based on our typical clinical programs, based on our formulary, what will be the PMPM the following year under our management.

[09:22] Justin Venneri: Got it. And we can get a little bit into the weeds here if you can help us kind of think through. You're alluding to, very specifically drug, mix and the importance of that. How should plan sponsors and other folks in the industry -- whether they're consultants or benefits brokers -- how should they be thinking about that drug mix component of this equation and the influence that has on the total plan spend?

Kristin Begley, PharmD: So, I would say when you look at unit cost versus drug mix, and the industry has done a really great job of trying to nail down unit costs, make it equivalent between PBMs of what's a brand and what's a generic, make sure PBMs don't exclude drugs that inflate rebate guarantees. Consultants have been focused on this heavily for 20, 30 years. That's the historic spreadsheet. And people do a good job of that.  

The drug mix component, which is: how many brands are going to go out the door? What type of brands are going to go out the door? How many refills are they going to approve? I'm sure most of you have copious amounts of chronic medications that get auto refilled and sent to you from your local pharmacy if they have one of those programs or your mail order pharmacy. So that drug mix component: what is the approval rate of the specialty medications from one PBM to the other. Is it a low net cost formulary strategy that's been left alone and historically undervalued? And it probably drives 50% to 70% of the total spend that your impact is.  

And I would say in general, we know that our aggregate PMPM is about 15% lower than the standard traditional PBMs in the industry because of that drug mix component. So again, 3% of drugs are driving 50% of your spend, and the difference between what I call an “aligned PBM” that is working in your best interest and the lowest net cost for patients' best interest and the traditional model usually drives about a 15% delta in the first year. And then year two and year three, you're still shrinking the balloon anywhere between one and 5% because those new utilizers, the new scripts, they're going after, those drugs they see advertised on TV. Don't even get me started. We're one of two countries that have advertisements on TV. They ask their doctor for it. When an aligned PBM is going to have a pharmacist that talks to a patient and said, did you know the risk for those drugs? You might lose your hearing. You're going to increase your cancer risk. So, patients can be very satisfied. If they're educated, they get a medication that's more clinically appropriate for the severity of their disease. And if their disease is severe, we of course want to put them on the latest greatest because it's a quality-of-life issue at that point.  

So that drug mix bucket really has been undervalued historically. And that's why I get so passionate about PMPM, because it forces the PBM to behave when they've been unit cost times drug mix equals gross spend. And you don't have to worry about the games because anybody in the C suite can say, what did I spend last year and how did my vendor help me manage the total cost next year, and what are they willing to put at risk for it? It is a partnership.  

So you can't say weight loss drugs for all and expect that we keep the drug mix down. That would adjust your PMPM. But most people at this point know what they're doing with their GLP-1s. Are they covering it? Are they treating it more cosmetically? And it's this partnership, but it's also what is the PBM doing? And I just think it's the easiest way for plan sponsors, HR, CFOs to get their arms around really important concepts for the CAA to hold themselves compliant so we don't end up in the situation like the 401K industry went through and still continues to go through today. And I think with the new issues that we see out there, we're at the tip of the iceberg of some of these potential lawsuits.

[13:30] Justin Venneri: And it sounds like understanding your total plan costs and what's driving them could be super helpful in avoiding issues. So, I think there's been a lot of interest in how drugs are defined or classified within the contracts. How important is kind of normalizing the categorization of drugs going forward to this equation and to the industry?

Kristin Begley, PharmD: Well, the PMPM solves for it. You don't have to know what a brand or generic is because you're getting a total cost guarantee. I truly believe this PMPM is the easy button for everybody to understand something that's been so complex. If you think about how pharmacy benefits have been procured in the past, someone tells you, well, Vendor A gave me a 90% discount and Vendor B gave me an 85% discount. I'm definitely going with vendor A, but the problem is, and let's make this example simple, you don't know if you're buying a luxury fleet of cars or economy fleet of cars if you were purchasing them for your employees, right? You don't know what the starting point is of that discount and those rebates.  

So unfortunately, so many times the vendor that provides the best rebate is the winner on the historical spreadsheet. But we know to get those amazing rebates, you had to spend a lot of money. You had to buy the most expensive drugs to get the most expensive rebates. Because in the supply chain, the variance between discounts at retailers and rebates really isn't that large. And that's the dirty secret. So, for a PBM to drive those maximum rebates, they have to make sure maximum specialty drugs go out the door. And that's been the conflict in the industry, and that's what's really part of the reason that we've been ballooning in the prescription drug space.  

The other secret in the industry is drug costs are going down. Generic drugs deflate and brand drugs, net of the rebates, are also lower cost. So, we've seen a big avalanche of health system clients moving towards our model because they actually know drug costs are going down. It's about what is the mix. So, if your procurement solution doesn't solve for drug mix, prior authorization between PBMs, formulary between PBMs, auto refill between PBMs, if your procurement solution doesn't solve for that, you should layer on top or replace with PMPM, because it solves for all of those things. It solves for unit cost, plus it solves for the classification of drugs. Your previous question, and it solves for the formulary and the clinical programs that the PBM is the one in charge of.

[16:13] Justin Venneri: Is there a threshold for the number of lives that a PMPM offer or guarantee is appropriate for in the industry?

Kristin Begley, PharmD: So, we generally are happy to provide a PMPM for belly buttons. More than 4000 lives. So, 2,000 employees, 4,000 total membership. We do have a new product for groups under 4000 lives where we have a stop loss insurance partner behind us. And the reason that we would need that is that it gets a little bumpier and volatile when it's under 4,000 lives. You stop behaving like the normal distribution of a population, so it gets riskier below 4,000 lives. And that was just our line in the sand. A different vendor could have a higher or lower line in the sand, but we do have another solution for those smaller groups.

[17:00] Justin Venneri: Got it. During your explanation, it occurred to me that you mentioned prior authorization, and of course that ties out to our pharmacists helping out in this process of ensuring that a patient will get the best medication available at the best price available for their condition. Is it really just about awareness of the options available? Because it does seem logical that a pharmacist could step in and be helpful in ensuring that the most appropriate medication is offered to the patient based on.

Kristin Begley, PharmD: The plan they have, I would 1000% agree. Pharmacists are underutilized relative to clinical consultation. And most people, if they're not a clinician themselves, when the doctor says take this medication, or they walked in because they saw a commercial and they asked their doctor for the medication, they don't go, hey doc, are therapeutic alternatives I could take that might be lower cost or just as effective. That's just not what patients do. And there's two types of patients. There's the consumer patient. Maybe you're going in because you have acid reflux, you might do some comparison shopping there. But then you have the catastrophic patient where you've got the cancer diagnosis. Some will gravitate to a lot of research of what their options are, but most are just very trusting of their physician. And we all know the influence pharmaceutical reps have on physicians, which is why they continue to spend as much or more money on that as they do on research for new medications.  

So again, I do think, and I think it's one of the reasons we've had really high success moving people to alternate therapies or generics alternate brands, because we have pharmacists explaining to patients what the risks are of the newer medications when they don't have a previous history of trying one of the more traditional medications that have worked for many years in the industry. And I just think it's a different level of care versus just the prescription came in auto approve -- or I call it rubber stamping. Yes, because the PBM makes more money, it's coming out of their retailer or it's coming out of their mail order facility versus not having what I call the hand in the cookie jar there.

[19:12] Justin Venneri: All right, and my last question for you today, Kristen, thanks so much for sharing your thoughts on PMPM. Now, to the extent you can share it, I know you've seen a lot out there. What is the most astonishing thing you've seen over your career in and around the let's call it that. We'll put some brackets around it for the health benefits space or your value-based care experience. Tell us a good story.

Kristin Begley, PharmD: Wait, what's the most astonishing thing I've seen?

Justin Venneri: Yep.

Kristin Begley, PharmD: I think most recently [was] a pharmacy benefit manager that we are looking to become their PBM. We looked into their historic claims data, and they had GLP-1s flying off the shelf and the customer believed that they had put in management tools, step therapy or prior authorization. They didn't realize they were covering it for anybody and anything. So that, I would say, is the most astonishing thing I've seen. And in general, in my career, I have never seen more vendors trying to be the solution to GLP-1s in the healthcare sector. I've never had more vendors try to pitch us for partnership for managing the GLP-1s. It has been quite a year.

Justin Venneri: That's a good one. Well, again, thank you so much Kristen, for taking the time to chat with us today. I will put some links in the show notes related to PMPM content that listeners may find helpful, and we look forward to having you on the show again.

Kristin Begley, PharmD: Thanks so much, Justin. Have a great day.

If you would like to learn more about Capital Rx’s full-service PBM or PBA solutions, including our clinical programs, CLICK HERE to get in touch with our team.

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