Pharmacy benefit management contracting: an assessment from a recent public sector procurement experience.(Statistical Data Included)

In order to contain the cost of pharmaceuticals while preserving access to medically necessary drugs, Georgia state government competitively selected a single vendor in May of 2000 to manage combined pharmacy benefits under all of the state's health programs. By initiating this procedure, it intended to maximize the state's purchasing power and improve efficiency while streamlining the administrative structure. Synthesizing information from the request for proposal (RFP) and technical proposals submitted by 11 pharmacy benefit managers (PBMs) in response, we describe a model of public sector PBM contracting approach and present an assessment of the industry's service capability and performance statistics. Payers who have been using PBM services may find it interesting to compare their experience with the recent Georgia experience. Those who are considering contracting with a PBM will find the assessment of the PBM industry timely and informative. Key words: pharmaceuticals, pharmacy benefit management, Medicaid, contracting.

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WITH RAPID therapeutic innovations and changes in population demographics, pharmaceutical expenditures have become an increasingly significant component of overall health care expenditures. Data show that from 1993 to 1999, national expenditures for prescription drugs grew at a rate of over 13 percent per year compared with a 5 percent overall health care expenditures growth. Moreover, projections point to an even faster growth of prescription drug cost in the future. Whereas the Center for Medicare and Medicaid Services forecasted that drug spending will increase from 9.4 percent of personal health spending in 1999 to 16 percent by 2010, a leading pharmacy benefit manager (PBM) recently projected that prescription spending will double in the next five years. (1) Given that prospective, containing the cost of pharmaceuticals while preserving access to medically necessary drugs is a major challenge for both public and private payers.

In order to improve administrative efficiency and effectively deal with increasing cost pressure in this dynamically evolving health care marketplace, the State of Georgia took a significant step in reorganizing and consolidating several state health agencies and programs into a single department, the Department of Community Health (DCH) in 1999. In March of 2000, DCH announced that it was consolidating all of the state's pharmaceutical purchasing programs (i.e., the Georgia Medicaid program, the Board of Regents Health Plan, State Health Benefit Plan, and Georgia's Children's Health Insurance Program), and it would select a single vendor to manage the pharmacy benefits for the entire state's health programs. By initiating this procedure, DCH created a single contract covering 1.9 million lives in four health insurance programs under the State of Georgia government, or nearly 25 percent of the State of Georgia's population.

This article describes key elements in the state's request for proposal (RFP) and presents information including structural and service-related performance measures using both qualitative information and statistics. As a case study, this article does not attempt to provide a comprehensive overview of the PBM industry. Rather, it highlights sample PBMs' current service capabilities and performance statistics in the context of a large competitive procurement. (2)

Particularly interesting are suggestions for cost savings and their estimated magnitudes. As a case study, it may not necessarily represent the PBM industry as a whole; however, the proposers represented a significant portion of the PBM industry to be described later.

Georgia's PBM Procurement Process

The RFP specified the following as the main deliverables: (1) online retail pharmacy system with claims and eligibility information capability; (2) disbursement of funds and fiscal intermediary; (3) comprehensive PBM services; and (4) comprehensive reporting. The RFP specifically excluded mail order pharmacy services and Internet pharmacies from the contract. Although such alternative pharmacies have demonstrated cost savings, the state excluded …