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Pharmacy Benefits: Traditional vs. Pass-Through Models

Blog Post
January 13, 2022
By: Capital Rx Communications
Topics: Pricing, PBM

It’s no secret that pharmacy benefit managers are under serious scrutiny when it comes to their effect on drug pricing. Plan sponsors are demanding greater visibility into their benefits and flexibility in their plan design to ease concerns of spending and member health.

Knowing how PBMs operate is the first step to ensure your goals are aligned. Understanding the three main PBM models can impact savings opportunities, service you’re expected to receive, and how much control you have over benefit design changes.

Understanding Carve-in and Carve-out Pharmacy Benefits

Before we dive into the specifics of traditional and pass-through models, it is important to understand what carved-in and carved-out mean. This has a major impact on the level of convenience that you can experience from your pharmacy benefits model.

Generally speaking, if the pharmacy benefits model is packaged with the medical carrier, this is known to be “carved-in”. It means that you have a single carrier, contact, and team to deal with. On the other hand, if you have a benefits plan that separates the prescription drugs, then you have a “carved-out” model.

Traditional vs. Pass-Through Models

Traditional model

While traditional PBMs may not outright label themselves as so, their model is pretty easy to spot. The traditional model focuses on discounts, narrow formularies, and high rebates to achieve cost savings. They typically do not have an admin fee and are less transparent about how they make money since they use opaque practices and pricing sources to generate revenue through rebates and pharmacy reimbursements. Additionally, traditional PBMs typically own and operate their mail service and specialty drug pharmacies.

Pass-through model

Pass-through PBMs claim to pass all discounts and rebates back to the plan sponsor. Their plan design and contracts are more flexible because they usually generate revenue from an admin fee instead of generating income from rebates and pharmacy transactions, however, a close look at a pass-through contract will reveal too many similarities to the traditional model. While pass-through PBMs "claim" their only source of revenue is their admin fee they too often own and operate mail and specialty pharmacies which exist as another source of income.

Combination

Most pass-through PBMs end up operating more like a hybrid of pass-through and traditional models. For example, a PBM may only pass-through rebates from one channel or only share partial pharma manufacturer-derived revenue with plan sponsors. Since transparency is limited, it’s unknown how much a PBM retains.

Where does Capital Rx fit in?

Actually, we don’t. Our Clearinghouse Model is the first step to create a fair and efficient market for drug pricing, simplifying the typical PBM contract and bringing full visibility to PBMs.

Contact us today to learn more about our Clearinghouse Model.