Changing the Game: Groundbreaking Drug Benefit Purchasing Standards for Large Employers

October 13th, 2023
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Between mounting legislative efforts, new purchaser tools and an increasingly untenable status quo, the pharmacy benefit manager (PBM) industry today faces an historic and long-overdue reckoning. Yet genuine PBM reform is not guaranteed and can only occur if large employers and other health care purchasers are unrelenting in their push for change.

For decades, pharmacy benefit managers have leveraged their middleman role in the drug supply chain to maximize profits at the expense of prescription drug affordability, leaving U.S. patients and employers to pay 2.5 times as much for life-saving medications as those in other high-income nations. Unchecked PBM profiteering has contributed to rising medication costs, threatened the sustainability of employer-sponsored health insurance and, in some instances, jeopardized patient health.

How to Address the Problem

Over the past 40 years, U.S. drug costs have climbed more than ten-fold, from $30 billion in 1980 to $348 billion in 2020. While pharmaceutical manufacturers are frequently blamed for rising costs, an undeniable link exists between price increases and the ever-expanding supply-chain dominance of PBMs. PBGH’s PBM initiatives and policy reform efforts are designed to help employers rein in out-of-control pharmaceutical spending.

PBMs employ a multitude of strategies to leverage their intermediary role in pursuit of outsized profits. Because these activities occur behind a veil of secrecy and ambiguity, most stakeholders have remained largely uninformed and uncertain about whether and how to challenge the status quo.

But that hesitancy is changing now, thanks to a growing public understanding of abusive business practices and concurrent efforts to compel accountability and reform. Rare political consensus at both the federal and state levels is driving legislative initiatives that impose key structural changes on the PBM industry. In the marketplace, new transparency rules, along with the fiduciary obligations for large employers offering employee health benefits, are triggering unprecedented scrutiny of PBM costs, fees and client representations.

Success in rolling back PBM abuses ultimately will depend on emerging legislative reforms led by employers and purchasers, in partnership with consumer groups, and a critical mass of employers using their market power to force fundamental change across the industry. This requires increased awareness from benefit departments and their senior leadership of the problems PBMs create, as well as practical, iterative steps to resolve them. Both objectives are priorities for PBGH members.

Setting the Standard

PBGH’s latest effort – the PBM Purchasing Standards – builds on a long history of combatting rising pharmaceutical costs and helps employers and other health care purchasers combat abusive PBM contracting practices.

The standards were developed by PBGH’s Pharmacy PBM Workgroup, which includes representatives from member companies, as well as ERISA attorneys, pharmacy industry specialists and PBGH expert staff. The document’s sample provisions offer a starting point for organizations seeking to establish a solid contractual footing in their PBM relationships.

The PBGH PBM Purchasing Standards offers guidance for leveraging these mandates in preliminary discussions with PBMs and pharmacy advisors. Recommendations include insisting on access to all direct and indirect compensation paid to benefit consultants and/or brokers by PBMs, as well as details about the purchaser’s pharmacy spend, historical drug costs and the financial impact of rebates on plan premiums.

Four categories of purchasing standards further inform the guidelines and underpin model provisions that can help plan sponsors meet their fiduciary obligations. The four standards include:

Sample contract language in support of each standard and tied to the transparency standard address two of PBMs’ primary avenues for profiteering: rebate retention and spread pricing.

All told, the guidelines include more than 140 model provisions or sub-provisions that contain specificity on everything from PBM reporting requirements and drug definitions to prior authorization, pharmacy network creation, formulary development and audit rights. The document also includes detailed definitions of multiple terms commonly used in PBM contracts.

Read more about the PBGH PBM Purchasing Standards and the organization’s history of fighting against outrageous drug costs.


PBGH recommends that plan sponsors interested in using the guidelines share the document with a specialized PBM ERISA attorney or expert pharmacy consultant. All advisors should review the document and attest to their alignment with both the spirit and letter of the guidelines.

Employees Ready for Action to Address High Health Care Costs

August 29th, 2023
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For years, employees have faced increasing premiums and cost-sharing. But how well do they understand the sources of those increases, and how ready are they for employers or policymakers to take action?

Recent focus group research conducted by Public Agenda, a nonpartisan research-to-action organization, with people covered by employer-sponsored insurance, found that participants were unaware of the extent to which provider prices are driving the affordability crisis. But when focus group participants were presented with straightforward information about the drivers of high medical costs, they favored government price-regulation and backed preventing anti-competitive mergers among hospital systems. By contrast, they were concerned about how changes to benefit design, such as tiered or narrow networks, would impact access and quality.

This research, supported by Arnold Ventures, convened 40 adults covered by employer-sponsored health insurance in Texas, Washington State, Wisconsin, North Carolina and Pennsylvania.

“We gave employees in these focus groups the opportunity to deliberate over various approaches to addressing high provider prices,” said David Schleifer, PhD, Vice President and Director of Research at Public Agenda. “Even participants who said they were wary of government regulation felt that price regulation has become necessary because prices have gotten out of hand.”

Confusion About Key Cost Drivers

Focus group participants initially assigned blame for rising costs to insurers, pharmaceutical companies and the effects of inflation. They were surprised when presented with data showing that hospital, physician and clinical services accounted for 51% of $4.1 trillion in total U.S. health care spending in 2020.

When they were shown data that indicated health care providers’ prices rose by almost 16% between 2016 and 2020, they cited widespread corporate greed as the underlying cause for sharply rising hospital and physician price increases.

Support for Price Regulation and Limitations on Hospital Mergers

Employees in these focus groups were strongly supportive of either state or federal government playing a role in setting health care provider prices and limiting hospital mergers. Broadly speaking, participants saw government regulation as a way to make pricing more reasonable and predictable. And they believed that anti-trust enforcement could break up monopolies and shield patients from what they framed as price gouging. This mirrors the views that employers expressed in a survey of more than 300 executive decision makers conducted by PBGH and the Kaiser Family Foundation (KFF).

The lack of functional and effective markets in the private health care system is driving the out-of-control health care costs too many Americans face. Effective markets require healthy competition among providers, health plans, drug manufacturers and suppliers. Also essential is transparent information on quality, patient experience, health equity and meaningful choices for consumers. Unfortunately, these conditions are not met in all markets.

Employers Pay Lion’s Share of Premiums

According to KFF, employers paid 73% of family premiums in 2022. But employees in these focus groups didn’t realize that employers typically pay the bulk of health insurance premiums, including those for family coverage. When presented with the data, however, participants could easily see how these high premiums must affect employers’ competitiveness and employees’ compensation.

The employers footing the bill for rising premiums also express significant concerns regarding health care costs. The PBGH and KFF survey of executive decision makers found 83% agreed that the cost of health benefits is excessive. Additionally, 87% believed that the cost of providing health benefits to employees will become unsustainable in the next five to 10 years.

Perspectives on Benefit Design

When presented with three benefit designs that employers could use to mitigate high provider prices – reference pricing in which prices are set based on a percentage of what Medicare pays for medical services; tiered networks based on cost and quality; and narrow networks that do not cover low value providers – these employees consistently preferred reference pricing over tiered or narrow networks.

They believed reference pricing could preserve access to more hospitals and networks than tiered or narrow networks. Among their concerns, however, was the possibility that hospitals and doctors could refuse patients whose insurers used reference pricing. They also worried that if hospitals and physicians earned less money, they would have less incentive to provide high-quality care and that talent could abandon hospitals being paid via reference-pricing in favor of wealthier facilities.

Employees were skeptical of how both tiered and narrow networks would affect access to care and quality.  They noted that these models could make care more expensive for people unable to travel to preferred providers, a reality that would exacerbate already-limited access in low-income communities, communities of color and rural areas. Employees also expressed distrust about insurers’ ability to fairly determine which hospitals or doctors provide high-quality care. They believed insurers would use tiered and narrow networks to drive people toward inexpensive, but not necessarily high-quality, care and would not prioritize patient needs.

Open, ongoing dialogue with employees about the drivers of high health care costs and different ways of addressing them can help employers, policymakers and advocates better understand the views, priorities and concerns of people with employer-based insurance.


Learn more about Public Agenda’s focus group findings here. Public Agenda’s research was supported by Arnold Ventures.

4 Steps for Large Employers to Meet Fiduciary Duties and Mitigate Legal Risk

May 22nd, 2023
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The Consolidated Appropriations Act (CAA) has created both opportunities and risks for employers when it comes to overseeing employee health benefits.

The CAA finally gives employers access to the kinds of cost-benefit data long available with virtually every other business decision. The law equips them to better perform their role as stewards of company and employee finances by assessing the value of the health care services they purchase for employees. Over time, these new insights will likely set in motion an unprecedented shift in the health care market’s balance of power. For that reason, it’s no surprise that vendor compliance with these new pricing, contractual and compensation disclosure mandates has been fragmented, incomplete or non-existent.

Employers must now take steps to develop rigorous fiduciary processes around health care purchasing. Consistently demonstrating good faith efforts to comply with the CAA will lead toward a safe harbor that should mitigate future legal exposure and adverse compliance action. Equally important, employer expectations will compel vendors to either alter their behavior or risk losing important accounts and business.

The challenge employers face should not be underestimated. ERISA makes very clear the liability for CAA compliance ultimately rests with the employer and its designated “plan fiduciary.” This may be an individual plan sponsor (who retains personal fiduciary liability), an internal committee, the board of directors or some combination of these. Although vendors will be instrumental in assisting employers and plan fiduciaries in meeting the CAA’s requirements, employers cannot delegate their fiduciary obligations away and must take steps to engage the CAA head on.

4 Steps Your Organization Can Take to Help Protect Itself from Legal Exposure

There are four steps employers can take today to demonstrate good-faith compliance with the CAA’s fiduciary obligations and mitigate downstream legal exposure and consequences.

1) Develop processes and criteria for evaluating vendor performance. Under ERISA, plan fiduciaries must run their health plan (including pharmacy, vision and dental benefits) solely in the interest of employees and their dependents with the exclusive purpose of providing benefits. They must also avoid conflicts of interest and show the plan pays only reasonable expenses. Because the CAA makes available new sets of transparency information, plan sponsors will find their opportunity and duty to oversee vendors has increased.

Employers must now develop and document a process for monitoring vendor performance for value and alignment with the health plan’s interests. This monitoring process should include regular review of the plan’s vendors to determine whether fees and claims are reasonable. Employers should benchmark their vendors’ compensation against others in the market and should periodically review their current vendors to assess reasonableness and examine the continued suitability of these relationships.

2) Request vendor compensation information. The CAA requires health plan fiduciaries to request details on the direct and indirect compensation their insurance brokers, consultants, pharmacy benefit managers and third-party administrators expect to receive. These compensation disclosures should include a detailed explanation of the services provided and direct and indirect compensation, including bonuses, referral fees, rebates and commissions, as well as the source of that compensation.

If you can’t understand a compensation disclosure document, push until the specifics are clear. Beware of ambiguous phrases like “we may or may not receive compensation.” Ensure the disclosure is signed not just by a representative of the firm, but also by someone in senior management who is able to authoritatively attest to its accuracy.

If the vendor refuses to provide the information or fails to do so within 90 days, employers are required to notify the Department of Labor and terminate the contract. Similarly, if the compensation is excessive or “unreasonable” or if it implies conflicts of interest, the vendor relationship would become a “prohibited transaction” under ERISA that the employer could not lawfully continue.

3) Work with legal counsel to ensure all gag clauses are removed from your service provider contracts. The CAA explicitly bans the presence of “gag clauses” in health plan service provider contracts, which are contractual terms that would restrict an employer’s access or ability to share health care cost and quality data. Prior to the CAA, these were extremely commonplace. Now, contracts entered into after December 27, 2020 cannot legally contain them.

Earlier this year, CMS announced employers will need to submit on December 31, 2023 their first attestation of having removed all gag clauses in their contracts. Moving forward, employers will need to attest annually.

Employers need to take great care in ensuring, with expert legal counsel, that they are compliant with this requirement. More importantly, they should view the CAA’s prohibition on gag clauses as an opportunity to access their full, de-identified claims data, including allowed amounts. Many employers have struggled to receive full information before and had to make health care purchasing decisions in the dark. The CAA has provided the light employers need to access and analyze their data.

4) Request plan-level prescription drug data collection (RxDC) data from your pharmacy benefit manager (PBM). The CAA mandates yearly submission of information on prescription drugs and health care spending, known as RxDC reporting. Often, this data is gathered and submitted in large part by a plan’s third-party administrator and PBM without the employer ever seeing the information.

However, RxDC data, originating from PBMs, contains potentially valuable information for an employer. Specifically, it includes novel information on the financial impact of rebates, fees and other drug manufacturer payments on the health plan and its impact on premiums and employee out-of-pocket costs.

Employers should request their plan-level RxDC data. If your PBM declines to provide it to you, document that you attempted to obtain it. If they do provide it, enlist the help of an independent, third-party pharmacy consultant to analyze the rebate information for new insights on how it affects your plan’s premiums and your employees’ out-of-pocket expenses.

What’s Next for Employers

As the post-CAA health care environment solidifies, new third-party intermediaries will undoubtedly emerge to provide employers with new tools, actionable insight and comparative cost and compensation data around the full spectrum of health care services, from hospitals to consultants to PBMs.

In the meantime, organizations must move forward as effectively as they can in uncovering baseline cost and compensation data. Ultimately, every step toward scrutinizing and defining value in the organization’s health plan is an exercise in fiduciary prudence and sound judgment that ensures organizational resources are used in the most effective way possible.


This content is educational in nature and should not be taken as legal advice. Consult with your legal counsel before making any decisions for your health plan, especially those related to CAA compliance.

One Health Issue Impacting Almost Half of America’s Workforce

May 4th, 2023
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Women make up almost half of the U.S. workforce, and over 40% of working women are age 45 or older. Since most women reach menopause between the ages of 45 and 55, women in the menopause transition represent a large, and growing, segment of the workforce.

Impact on Women in the Workforce

A recent survey of more than 1,000 working women found that 40% of women age 50 to 65 years old stated that menopause symptoms interfered with their work performance or productivity on a weekly basis.

Each woman’s experience with menopause is unique. Symptoms vary in severity, duration and impact as well as across race and ethnicity. A woman may experience many symptoms as she transitions into menopause. For many women these symptoms last around seven years, but some women experience symptoms for up to 14 years or longer.

Best Practice Interventions

There are many interventions that can improve both quality of life and the symptoms women experience because of menopause. First and foremost, education and awareness about menopause and the impacts it can have on a woman’s daily life and long-term health is important. Education is also essential to ensure that women are aware of the available treatment options and to clarify their preferences so they can make informed decisions. Read more about interventions in the full issue brief.

A Call to Action for Employers

With an aging workforce, it’s becoming increasingly vital for employers to create a supportive workplace that recognizes and normalizes this stage of life.

Menopause takes place when many women have reached the peak of their careers and when they are likely in leadership positions, and severe menopause symptoms can disrupt a woman’s career and her ability to continue and advance in her role.

Given that employee retention — especially of experienced workers — is a priority for employers, there is a tremendous urgency and opportunity for employers to act.

Read the full issue brief, sponsored by Astellas, to learn more about the effects of menopause, interventions available and other considerations.

The Hidden Cost of PBMs in the Health Care Industry

April 25th, 2023
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Pharmacy benefit managers (PBMs) play an essential role in managing prescription drug benefit plans for employers and health insurers. But too often, these corporate middlemen are using tactics that drive up drug prices, limit patient access to needed medicines and contribute to health risks. PBM profiteering is hurting patients, and Congress needs to enact measurable reforms now.

The Role of PBMs

PBMs are organizations that manage prescription drug programs for employers who provide health benefits for their workers.  They are supposed to use their purchasing power to negotiate discounts from pharmacies and pharmaceutical companies on behalf of employers, and this should bring down the costs for employers and patients. However, PBMs do not always pass along to their customers all the savings they negotiate.

How PBMs Game the System

PBMs employ a variety of tactics designed to increase profits at the expense of patients and often profit more when higher cost medications are used. One example is when PBMs charge a co-pay or deductible amount higher than what they paid for a medication. They then keep the difference as profit instead of passing it along to their customer or patient. Another tactic is “spread pricing,” or paying pharmacies less than what they’ve charged the health plan, employer or patient.  The intentional complexity and lack of transparency in the current system allows PBMs to benefit from high-cost drugs and results in employers, and ultimately patients, paying more.

Impact on Patients and Employers

These tactics have serious implications for both patients and employers. Patients may be forced into costly treatments or have to switch medication because a higher-cost drug offers a PBM a higher rebate, and PBMs determine which prescription drugs patients have access to. In addition, employers are left footing the bill and are most times prohibited from even auditing the PBM to see if they are getting a fair deal and paying a reasonable price. All this can lead to higher risks for patients and increased out-of-pocket costs leading some people to have to make the choice not take necessary medications.

What’s Needed

The nation’s employers are purchasing life-saving health benefits for American workers in a market that is not functioning as intended. The result is that employees and their families are being denied access to affordable prescription drugs. Federal action is essential to curb PBMs’ anti-competitive practices and to require accountability for the industry. 

These actions must include:

  1. Require full and complete transparency and reporting: PBMs and their parent companies should be required to provide strong reporting to employers on costs, fees and total manufacturer revenue, and ensure employers have the right to audit their PBM with an auditor of their choosing. PBMs should not be allowed to engage in workarounds or legal games that skirt these laws.
  2. Ban spread pricing: PBMs should not be allowed to charge employers, health plans or patients more for a drug than the PBM paid the pharmacy for that drug.
  3. Require PBMs to pass-through 100% of all rebates, discounts and fees: PBMs should be required to pass on 100% of all rebates and volume or access-based administrative fees to employers and plan sponsors.
  4. Hold PBMs accountable the same way employers are held accountable: Employers are required as plan fiduciaries to be good managers of the health care benefits they provide employees and act in a manner that minimizes costs. PBMs should be held to the same level of accountability as employers and health insurance plans.

Read more about how PBMs are failing American workers.

A CFO’s Guide to Health Plan Fiduciary Leadership

January 17th, 2023
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Recent passage and implementation of the Consolidated Appropriations Act (CAA) of 2021 creates new risks and opportunities for employers who self-insure their health benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA).

What Employers Need to Know

The CAA mandates employer access to new and critically important insights into the prices they’re paying for employee health care services – details they have been unable to previously obtain from vendors to whom they pay millions of dollars each year to negotiate on their behalf. Finally, employers can evaluate the cost and quality of services they are purchasing from providers and other vendors and make informed procurement decisions. In fact, the law requires employers to demonstrate that the health care services they buy for their employees are cost-effective, high-quality and meet mental health parity and pharmacy benefit requirements.

This means that employers must take steps to establish oversight procedures and processes to document their efforts to comply with the CAA as fiduciaries, similar to the governance practices employers have already established for their 401(k) and retirement plans.

Implementing an effective health plan oversight and audit framework, with documented procurement processes, can substantially reduce corporate exposure for companies and individual directors, officers and employees. Many employers currently lack adequate controls in their existing service agreements, have historically tolerated unreasonably high fees and costs and often rely upon financially conflicted intermediaries for advice.

The CFO’s Role

It is because of these systemic barriers to compliance that CFO leadership is particularly needed to guide corrective action. Compliance may very likely require companies to adopt new business practices, amend existing health benefit contracts and ensure insurance policies for Directors and Officers cover claims involving employee health plans.

The heightened fiduciary risk of being a health plan manager is occurring at a time of increasing health plan expenses, economic pressures, workforce recruitment and retention challenges and a seemingly insatiable employee demand for immediate, personalized solutions that foster overall well-being. CFOs who embrace a health plan fiduciary framework to mitigate litigation risk may find that compliance opens new opportunities to reduce wasteful health care spending, improve predictability and enable better support for the health and wellbeing of their employees and families.

An Opportunity to Address Workforce Health Challenges

The same health plan data that can help CFOs mitigate fiduciary risk can also unlock opportunities for human resource and benefit leaders to better address workforce health challenges and manage delegated services and vendors. Fiduciary leadership that is aligned across finance, human resources and benefit teams can catalyze a transformation of employee health benefits from a liability to a valuable, strategic asset.

Click here for our guide to establishing a strategic fiduciary framework to enhance the value of employee health benefits.

4 Key Employer Health Trends for 2023

January 4th, 2023
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With the pandemic’s grip finally easing, employers are shifting their focus toward key objectives that can support sustained improvements in health care quality and meaningful reductions in cost. Here, the top four trends for large health care purchasers to watch as we head into 2023.

1. Improving health equity

COVID-19 exposed major disparities in the U.S. health care system and helped fuel an employer commitment to tackle the systemic inequities faced by underserved and minority communities. Employers understand that by focusing on health plan design, care access and social determinants of care, they can make important strides toward providing more equitable and cost-effective care.

In the coming year, more large companies will be looking to cover preventive medications and services, supporting pregnancies through doula services, developing data capabilities to identify and help address social determinants, improving remote chronic disease management, and making benefits and health care simpler to access and navigate for underserved populations.


2. Strengthening primary care

Employers realize that robust primary care provides the foundation for a healthy workforce and is an essential starting point of high-value health care system. Studies show that advanced primary care, or primary care systems that incentivize integrated and coordinated care, can lower overall health utilization, improve outcomes and reduce costs.

Key strategies employers are expected to target to bolster primary care include supporting consistent advanced primary care standards for payers, providers and health care purchasers to incentivize high-quality, lower-cost primary care. Other employer efforts are likely to focus on working with policymakers to advance the development and application of alternative payment models that support and enable advanced primary care. Equally important will be the continued evolution of tools and systems that enhance consistent access to behavioral mental health in the primary care setting.

To support purchasers in their efforts to identify and work with top-performing primary care practices, PBGH recently issued a first-of-its-kind collective request for information (RFI) on behalf of members to identify provider practices that meet established standards of advanced primary care and that are willing to partner — the results of which will be used in network design and/or in direct contracting arrangements.


3. Taking fiduciary responsibility for health care

The Consolidated Appropriations Act (CAA) of 2021 imposes fiduciary obligations for employers who self-insure under the Employee Retirement Income Security Act of 1974 (ERISA). That means self-insured employers will need to demonstrate that the health care services they purchase for employees are cost-effective and high-quality. As a result, employers will be working to harness newly available hospital price information to drive cost-effective, quality care. Critical to these efforts will be tools that can make newly transparent price data meaningful and actionable. In addition, collective employer efforts to identify specific examples of overpricing will likely emerge to support negotiating leverage with hospitals and providers. Ultimately, employers’ new fiduciary obligations may spawn a shared national database with companion analytics that purchasers can use for evaluating pricing variation to help determine fair prices.


4. Reforming pharmacy benefit managers (PBMs)

A key legislative objective for purchasers in 2023 will be passage of legislation similar to the last Congress’s Pharmacy Benefit Manager Transparency Act of 2022. Comprehensive federal legislation would empower the Federal Trade Commission to increase drug pricing transparency and hold PBMs accountable for numerous unfair and deceptive practices that increase consumer costs and limit access of prescription drugs. In addition to expected action from Congress, a Federal Trade Commission investigation into PBM business practices is underway. Employers, meanwhile, will increasingly be looking to new market entrants that promise more transparent PBM services and put employers in control of their data to gain greater control over rising drug costs and employee access to quality care. PBGH is working across multiple channels to raise awareness about the extent to which PBMs have distorted the prescription drug supply chain – actions which put lives at risk, constrain employee access to medications and add billions of unnecessary costs to employers’ health care expenses.

High Health Costs Hurting Employers’ Ability to Hire and Keep Workers

January 3rd, 2023
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A new survey of U.S. employers underscores the widening damage done by rising health care costs: Nearly 75% of those surveyed say health care expenses are squeezing out salary and wage increases and more than 80% believe health costs are negatively impacting their ability to stay competitive in today’s labor market.

The Pulse of the Purchaser survey, conducted online in August and September by the National Alliance of Healthcare Purchaser Coalitions, assessed employer views on health care and the workplace environment. Respondents included 152 employer-members of organizations affiliated with the National Alliance. The purchasers represented an array of sectors and ranged in size from more than 10,000 employees to less than 1,000.

‘A Street Fight’

Michael Thompson, National Alliance president and CEO, said the survey results bring into sharp relief the growing challenges employers face in recruiting and retaining talent amid a volatile labor market and the unrelenting financial burden of health care.

“The consensus among many of the responding employers is that attracting and retaining employees has become a street fight,” Thompson said. “Concerns about a recession and runaway inflation make it even more critical that employers are able to hire and keep top talent and getting unreasonable health care costs under control has a far-reaching impact on wages and ability to compete.”

The survey found that post-pandemic, finding and keeping employees has become an even higher priority for nearly 80% of employers, with 100% agreeing that health and wellbeing benefits are essential to effective hiring. Rising health care costs also remain a significant concern for employers, with the biggest cost drivers of employer-sponsored health benefits coverage for employees and their families being drug prices (93%), high-cost claims (87%) and hospital costs (79%).

Ninety-seven percent of respondents believe hospital prices are unreasonable and indefensible, and 93% say hospital consolidation has not improved the cost or quality of services. Additionally, employers familiar with transparency tools such as those from RAND, National Academy for State Health Policy and Sage Transparency are up to 10 times more likely to strongly disagree that hospital prices are reasonable and defensible.

Hospitals Continue to Seek More Money

The results of this survey come at the same time the hospital industry – a primary source of rising health care costs in the U.S. – is asking Congress to stop scheduled Medicare payment cuts and provide more federal relief due to challenging economic conditions. But a recent analysis of SEC filings by the Kaiser Family Foundation found that the nation’s three biggest for-profit hospital chains each had positive operating margins that exceeded pre-COVID levels for most of the pandemic, including as recently as the third quarter this year.

In short, the industry continues to cry hungry with two loaves of bread under its arms.

Strategies to Lower Costs

Almost half (47%) of employers, according to the Pulse of the Purchaser survey are using centers of care excellence; within the next three years, many others are looking at tiered networks (46%), sites of care (43%), contracting and performance guarantees tied to Medicare pricing and reference-based pricing (36%).

More than 90% of employers say they have implemented or are considering high-cost claims management, mental health and substance use access and quality, hospital quality transparency, hospital price transparency and whole person health.

Employers are open to a range of policy and regulatory remedies, including drug price regulation (82%), surprise billing regulation (79%), hospital price transparency (76%) and hospital rate regulation (72%).

States are also sending a strong signal that providers need to compete on value and will no longer be allowed to engage in anti-competitive practices to gain market power. In states as varied as California, Washington, Texas and Indiana, state lawmakers are working to eliminate anti-competitive contracting practices and increase transparency around pricing, quality and costs.

The Influence of the CAA

At the federal level, the landmark Consolidated Appropriations Act of 2021 (CAA) requires plan sponsors be given access to new and critically important health care pricing information. At the same time, it imposes fiduciary obligations for employers who self-insure under the Employee Retirement Income Security Act of 1974 (ERISA).

Under the law, self-insured employers will need to demonstrate that the health care services they buy for employees are cost-effective and high-quality. That means they must take steps now to ensure appropriate oversight procedures are in place that will enable them to document their efforts to comply with CAA’s provisions. It also means that employers will increasingly have access to new and critically important insights into the prices they’re paying for employee health care services – details they have been unable to previously obtain from vendors to whom they pay millions of dollars each year to negotiate on their behalf.

Supporting Non-Hospital Birthing Options: Employer Strategies to Improve Quality

May 23rd, 2022
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Maternal infant health outcomes in the U.S. remain the worst among high-income countries, and Black women in the U.S. are nearly three times more likely to die from pregnancy-related complications than white women are. Additionally, U.S. women of reproductive age are significantly more likely to have problems paying their medical bills or to skip or delay needed care because of costs.

To underscore the high costs disproportionate to the poor maternal health outcomes, the cost of maternity care represents American employers’ second-highest annual health care expenditure – $1 in every $5. Faced with unacceptable results, employers are looking for pathways to improve maternal health care quality, affordability and the overall patient experience.

Improving Quality and Lowering Costs

Consumer surveys have shown that more patients are seeking non-hospital, community-based childbirth options, such as midwives, doulas and birth centers. This is particularly true for birth participants of color who are looking for alternatives to the hospital-physician childbirth experience.

Recent CDC 2020 vital statistics data mirror what we have seen from consumer surveys. Although overall births declined, in 2020 the number of births in birth centers nearly doubled.  This is a significant indication that more women want choice in their maternity care team and care location and that more families, when given a choice, are seeking a non-hospital childbirth option.

Non-hospital maternity care options can help to address the problem of high-cost, low-quality care. Evidence shows the use of midwives improves overall maternal and infant health and decreases the cost of maternity care. In fact, research shows that collaborative care led by certified nurse midwives can result in 22% fewer primary C-sections. It also helps address a growing shortage of perinatal health providers. Despite these benefits, however, certified nurse-midwives are vastly underutilized, delivering only 9% of babies nationally.

A birth center is a midwife-led childbirth facility that offers individuals and families a more natural, lower intervention and less medicalized childbirth experience. Birth centers are freestanding facilities and separate from acute obstetric or newborn care where care is provided in the midwifery and wellness model of care. Birth centers typically have relationships with other community health providers and arrangements with other facilities, such as hospitals, for transfers to other levels of care when needed.

The CMS Strong Start program demonstrated that women who received prenatal care in birth centers had better outcomes and lower costs. This included lower rates of:

Additionally, costs were more than $2,000 lower per mother-infant pair during birth and the following year for women who received prenatal care in birth centers.

How Purchasers Can Support Non-Hospital Options

Employers know that improving maternal health outcomes in the U.S. and reducing disparities will require changes to the existing system of care to make it more patient centered. Here are three ways employers can influence the health system and health plan leaders’ perspectives to address the barriers preventing birth center expansion, collaboration between hospitals and birth centers and access to midwives:

In response to the lack of comprehensive, coordinated care and the overmedicalization of childbirth PBGH has developed several strategies to help employers impact their maternity marketplace.

6 Things Every Employer Should Know About Their Pharmacy Benefit Manager

May 11th, 2022
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Pharmacy benefit managers (PBMs) ostensibly work on behalf of self-insured employers to manage drug spending and ensure employee access to preventive and curative medications. But an industrywide lack of transparency, coupled with complex and often-confusing policies and contract terms, has opened the door to PBM profiteering. Large, self-insured employers – and their employees – are the ones paying the price.

Here are six things employers should keep in mind when evaluating the drug supply chain and PBMs:

1. The higher the drug price, the more money the PBM makes. Like drug manufacturers and wholesalers, PBMs are paid a percentage of retail drug prices. They’re incentivized to exclude lower-cost drugs and promote higher-cost medications in their approved drug lists or formularies. This means employers often end up paying higher drug prices for branded medications when clinically equivalent generic drugs exist. Branded drugs will at times, be needed, knowing that, every employer should engage in a detailed negotiation related to rebates and insist that all earned rebate dollars are passed back to the employer.

2. Industry consolidation is contributing to reduced transparency and higher costs. The three leading PBMs are controlled by national health care enterprises, managing nearly 90% of prescription claims in the U.S. These consolidations create potential conflicts of interest between business units and make it nearly impossible to trace the flow of funds surrounding prescription drug costs. Every employer should take their PBM out to bid at the end of every contract cycle and consider working with new market entrants that have adopted a more innovative, transparent approach, aligned with the needs of employers and their employees.

3. The big three PBMs are adding cost and opacity by layering on new organizations that contract directly with drug manufacturers. The three leading PBMs all have group purchasing organizations (GPOs) to serve as intermediaries between drug manufacturers and their respective PBM operations. Even though it’s not clear what, if any, value the GPOs will create, research suggests they’re expected to extract an added 5-8% in fees from the drug supply chain. Additionally, because they’re replacing PBMs as the organizations that contract directly with drug manufacturers, the GPOs will help insulate PBM operations from audits and potential legislative cost remedies, including new transparency requirements of the Consolidated Appropriations Act. Every employer should scrutinize their PBM contract and ensure they have access to the data ownership and audit rights they need to evaluate and optimize their pharmacy benefit.

4. Employers should focus less on rebates and more on total manufacturer revenue. In PBM contract negotiations, large employers typically want a guarantee that they will receive 100% of manufacturer rebates, often missing the contractual loophole that caps these rebate payments at a fixed dollar amount, preventing the employer from collecting on total rebates earned. This is money PBMs have long kept for themselves to boost profitability. On top of an employer’s rebate dollars, a PBMs collection of administrative fees has also increased, with transaction and claims processing fees as recent additions to client invoices. Employers should comfortably question every fee that gets included in their PBM contract. To implement the strongest possible contract, every employer should push for a guarantee of a major percentage of all manufacturer revenues, or the higher of, the guaranteed rebate amount or actual manufacturer rebates earned.

5. Each PBM creates its own definitions of brand and generic drugs. Almost every single PBM contract begins with a Definitions section. PBMs have long used widely varying definitions for categorizing drug types to maximize their rebate earnings. To make matters more confusing, the initial Definitions section isn’t the only place PBMs define contractual terms; they might do so in several other spots throughout the contract. In doing this, PBMs are guaranteeing they maximize their opportunities to make decisions that continue to fuel their profits. Every employer should be vigilant about their PBM’s defining and redefining of contractual terms as it directly impacts the employer’s financial plan performance. Your contracts begin with an all-inclusive Definitions section, using the readily accessible industry standards as the source, and include a clause dictating that the terms and their definitions are only available once.

6. Three critical questions should be asked and answered before signing a contract. PBMs have long thrived in an environment characterized by inordinate complexity and a lack of transparency. For this to change, every employer must become more informed and proactive to use their purchasing power to ensure PBMs are consistently working in the best interests of the employer and its employees.

Use this information and the following set of questions in your upcoming discussion with your PBM: