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What HR Needs to Know About PBM Reform

Nicolette Cross

July 5, 2023

Originally published on BenefitsPro

As the United States at large — and employers, employee benefits leaders, and HR professionals in particular — continue struggling to ensure affordable health care, pharmacy benefit managers (PBMs) have recently come under scrutiny for their role in the high cost of prescription drugs. HR leaders would do well to pay attention to what’s happening in this arena and be prepared to respond to their leadership and employees as events unfold. Optimally, HR will be able to clearly communicate to employees, internal stakeholders, and the C-suite about changes to their prescription benefits and costs.

As recently as the week of May 8, four new bills related to PBM reforms moved out of the U.S. Senate Health, Education, Labor and Pensions Committee. This followed the passage of five bipartisan bills out of the Senate Judiciary Committee in February.

All of the bills that have advanced in Congress share one overarching objective: increased transparency into the opaque practices of PBMs.

The various bills have unique wrinkles. But the Pharmacy Benefit Manager Reform Act (S. 1339), led by Senators Bernie Sanders (I-VT) and Bill Cassidy (R-LA), contains three reforms that reflect the sentiments of almost every one of the bills: ban spread pricing, ban certain clawbacks by PBMs, and require rebates paid to PBMs be passed through to plan sponsors.

Why should HR leaders care about this seemingly arcane legal mumbo-jumbo? Before answering that question, let’s first look at what those three reforms mean:

  • Spread pricing — A PBM charges health plans more than it pays the pharmacy for a medication and then pockets the “spread,” or difference in costs.
  • Rebates — These are payments from drug manufacturers to PBMs in exchange for the PBM giving their products preferred status and greater market share on the plan formularies.
  • Clawbacks  These are remuneration fees — direct and indirect — incurred by pharmacies that dispense Medicare Part D (outpatient) drugs. PBMs can charge these fees long after a pharmacy has filled a Medicare prescription.

All of these bills have the potential to affect how PBMs operate, and HR leaders have three strong reasons to develop a communication strategy and be ready to communicate these potential changes to employees, internal stakeholders, and the C-suite.

The potential impact on employer health care costs 

The first reason is that spending on prescription drugs represents a significant portion of most employers’ health care budgets. A 2021 survey by the National Business Group on Health found that employers had expected to spend an average of $11,176 per employee on health care costs, with prescription drugs accounting for nearly 25% of that cost. Any changes to PBM practices could have a significant impact on a company’s bottom line, and employees need to be made aware of what changes are coming.

The potential impact on employee out-of-pocket costs 

Secondly, HR leaders should focus on communicating how PBM reform will affect employees’ out-of-pocket costs for health care expenses. Surveys show that many employees are increasingly frustrated with high-deductible health plans and rising co-pays for prescriptions. Greater transparency and regulation of PBMs (the overarching goals of any PBM reform legislation) could potentially lower costs for employees. For that reason alone, it’s important for HR leaders to be proactive in explaining how these changes will work and what benefits they will bring.

The potential disruption in health care services

Finally, HR leaders should be prepared to speak with employees about any potential disruptions to their health care services as a result of PBM reform. Changes to PBMs may result in changes to the drugs covered through a company’s health plan. Employees may need to make adjustments to their prescriptions or find alternative therapies. By communicating these changes proactively, HR leaders can help minimize any confusion or frustration among employees.

Preparation for communication is key 

HR professionals need to be aware of the ongoing PBM reform legislation and be prepared to communicate changes to employees and company leadership. That doesn’t mean HR leaders don’t need to start creating communication strategies from scratch. Several strategies already exist. Here are three that can help HR leaders keep their employees informed and prepared for potential impacts of PBM reform.

1. Continuously educate employees about all of their total health care benefits

The trend toward more comprehensive health care benefits alone argues for employers to better educate employees about their health care options. They may be confused about whether an HSA or FSA better fits their budget and health care spending, for example. They may not be aware of how they change their benefit elections if they have a qualifying life event, such as having a new child or getting married.

With a trusted benefits administration partner, HR can easily deliver resources and periodic training on all aspects of employee health care plans and expenses, including the potential impact on prescription drug costs as a result of PBM reforms.

2. Give employees a way to easily voice their concerns and opinions about their health care needs

One of the best ways to do this is through 1-on-1 communication within the organization. HR can also employ strategies including two-way messaging, quizzes, surveys, creative infographics, and short videos to push out relevant information and gather feedback from employees. A benefits administration partner with proven communication expertise and tools can be a big support here.

3. Drive preventive care through incentives that matter

Using incentives remains one of the most effective methods to provide support for employees and increase the use of preventive care benefits. Incentives such as paid time off, lower premiums, and reward and recognition points can encourage employees to seek medical help that can prevent or mediate a range of health problems, including heart disease, weight loss, and mental health support.

Although the details of the various bills pushing for PBM reform may be complex, HR leaders should focus on the impact that these changes will have on employee health care costs and access to medication. By crafting a proactive communications strategy, HR leaders can ensure that employees are informed, engaged, and equipped to make the best possible decisions about their health care.

Craig Stephens is Chief Revenue Officer at Selerix, an industry-leading provider of benefits administration software. 

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