Bipartisan “Reverse Auction” for PBMs Creates Transparent and Technology-Enabled Competition that Results in 27 Percent Savings for Public Sector Budgets and Taxpayers
SAINT PAUL, MN – A bipartisan law to modernize how the state purchases prescription medications through its pharmacy benefit manager (PBM), has enabled Minnesota to capture unprecedented savings: a total of 27% of the state’s prescription drug spend for the State Employee Group Insurance Program (“SEGIP”) and the Public Employees Insurance Program (“PEIP”). SEGIP and PEIP together provide health benefits to nearly 200,000 state and local government employees. As a result, the state is projected to save more than $130 million in drug costs for public sector employees in 2023 and 2024.
"The Legislature has the responsibility of finding ways state government can be better stewards of taxpayer dollars,” said Senate author Michelle Benson. “We created a transparent, online marketplace, like eBay for prescription drugs. PBMs had to underbid one another over multiple rounds to win the state contract. We knew we would save money, but this process outperformed our highest hopes. The market worked. Taxpayers will save millions of dollars each year. This process should be examined to learn how it can be applied to other areas of state government.”
The new PBM contract awarded through the reverse auction process created minimum savings guarantees for the state that are 23% higher than in the previous contract, ensuring a significant savings floor for SEGIP and PEIP. In future years, state prescription drug savings may exceed the new, higher savings floor, but the new contract terms assure that savings to the state cannot be lower, ever again. In addition to the minimum savings floor, the reverse auction captured further savings through deeper discounts on prescription drug prices, lower administration fees, and other drug pricing improvements that PBMs offered the state during the competitive bidding process, concessions to the state that were incorporated into the final contract awarded to the reverse auction winner.
"The high cost of prescription drugs is out of control for far too many Minnesotans and this new bipartisan law takes a positive step to rein in those costs," said State Representative Mike Howard. "Utilizing innovation, transparency and the full bargaining power of the state we are able to get a better deal on prescription drugs for the people of Minnesota. I'm hopeful this is a model we can look to replicate and build upon in the future."
In accordance with the new state law governing the PBM reverse auction, the modernized state procurement process was implemented through a unique partnership between SEGIP and PEIP managers and unions representing the public sector employees who are covered by these insurance programs. This partnership of state managers and union representatives working directly with Truveris, the reverse auction operator, played a critically important role in achieving success in capturing historic prescription drug savings for state taxpayers.
“Passage of the legislation was important in ensuring labor continues to have a voice in maintaining a high-quality health insurance plan at a reasonable cost,” said Pat Arseneault, IFO staff member and Labor Co-Chair of the Joint Labor Management Committee on Health Plans. “A joint committee of state employee union and management representatives worked collaboratively throughout the PBM selection process. The highly competitive and transparent nature of the reverse auction bidding procedure ensures that costs for prescription drugs and our overall health plan remain affordable for the state and its workforce.”
“This victory would’ve never happened without our public worker unions having a voice at the table, right along with state government managers,” said Teamster Local 320 President Brian Aldes. “Partnering in solidarity, we all stood strong for our members and Minnesota taxpayers, by demanding a transparent and accountable procurement process. Making PBMs compete for our prescription drug contract resulted in an incredible savings – the results speak for themselves.”
PBMs are middlemen corporations that manage prescription drug plans and play a major role in determining what states, businesses, and patients pay for medicines, as well as how pharmacies are reimbursed. While PBMs were intended to help reduce costs for patients, they’ve been successful in diverting savings into their own profits, rather than passing those savings on to patients and taxpayers. The PBM reverse auction is a proven strategy for driving down out-of-pocket costs and holding PBMs accountable.
Note: Aggregate savings projections are performed using data provided by Minnesota Management and Budget to the legislature. To learn more about the PBM reverse auction process, click here. To learn more about the PBM Accountability Project of Minnesota, visit pbmaccountabilitymn.org.