Most private equity firms look to acquire companies, rapidly increase their value, then exit for a healthy profit. Part of increasing value comes from dramatic improvements in profits and productivity, but it can also come through slashing costs wherever possible. The company health benefits program is an excellent place to start. Reference-based pricing is an incredible cost-savings tool for private equity firms, but there’s another strategy available to investors who want to squeeze every dollar from their portfolio: addressing the prescription drug program. Businesses with self-funded plans can slash waste and seize opportunities in their prescription drug programs for major savings.
3 Opportunities for Savings in Your Prescription Drug Program
Private equity firms have three major avenues for cutting costs in their prescription drug programs. Steps you should take include:
1. Check your rebates. Your company is likely entitled to numerous prescription rebates it’s currently not receiving. This is often a result of your pharmacy benefits manager (PBM) holding onto these rebates for themselves. Review your prescription drug program to see how many rebates you should receive each month, then make sure your PBM is sending them to you. In the interest of slashing costs, you may find success in looking for a new PBM who is honest about forwarding rebates to your company.
2. Evaluate the drugs on your plan. Certain medications can cost hundreds or even thousands of dollars each month. Review your prescription drug list and evaluate whether or not it makes sense to drop some of the more expensive medications in exchange for a generic option. If you have an employee who relies on a prohibitively expensive medication, you could potentially find alternatives ways to support them without carrying the medication on your plan. Look for manufacturer rebates and other opportunities that could make the medication an affordable out-of-pocket expense for your employee while removing it from your company’s plan.
3. Pursue a fiduciary model with your PBM. A fiduciary model starts with creating as much transparency as possible, with contracts between PBMs, pharmacies, and companies written to be completely understandable. Fiduciary models often lead to slashed PBM administrative costs and lower prices on medications, leading to bigger wins for companies and their employees.
Together, these three strategies can save your company 15%-40% on its prescription drug program. With prescription costs accounting for 25% of the average benefits plan, a 40% reduction on prescription drug prices could slash a $1 million plan by $100,000. For private equity firms, these are significant boosts to evaluations—both for each individual company and to the overall portfolio!
Increase Valuations Today
Major changes to your prescription drug plan don’t happen overnight, but the time invested is worth the effort. By cutting your prescription drug costs, you can significantly reduce your overall benefits costs. Whether you try this strategy in one company or every business in your portfolio, the end results can lead to powerful valuation boosts.