Pharmacy Benefit Managers Contribute to High Drug Costs

The high cost of prescription drugs is an important issue for our members and employers. A recent investigation into Pharmacy Benefit Managers (PBMs) highlights their role in this trend.

PBMs are middle-men who work with drug manufacturers, pharmacies, and insurers to negotiate discounts, process claims, and perform other administrative functions for our benefit plans.

After years of mergers. three PBMs now control 80% of the US market: Express Scripts, CVS-Caremark and OptumRx.

The piece explains how PBMs use market power and non-transparent business practices to make money at the expense of pharmacies, employers, and plan enrollees. According to an expert quoted in the piece, “these companies make a fabulous amount of money, even though they’re not buying the drug, not producing the drug, and not putting themselves at risk.”

Take-Aways for Union Negotiators:

1. For plans where members pay a coinsurance percentage for brand drugs - determine whether the coinsurance is based on list price (the higher price manufacturers set) or net price (the lower price PBMs negotiate after discounts). A study funded by the Pharmaceutical Research and Manufacturers of America (PhRMA) found that more than half of insured drug spending is based on the full list price. Basing the coinsurance on net price ensures workers will share in plan savings.
2. For plans where members pay copays for generic drugs, the PBM may be paying an amount less than the copay for the drug and pocketing the difference. Consider a plan design that turns the copay into a cost share cap, so that the member pays less if the drug’s price is less than the copay.
3. Investigate switching to a “transparent PBM” which charges a flat fee per prescription and discloses all discounts and savings. In 2013, Fortune Magazine published the story of a hospital system in New Jersey that saved $2 million in its first year after switching from Express Scripts to a transparent PBM.

Links:

The Hidden Monopolies That Raise Drug Prices (The American Prospect, March 28. 2017)

Commercially-Insured Patients Pay Undiscounted List Prices for One In Five Brand Prescriptions, Accounting for Half of Out-of-Pocket Spending on Brand Medicines (PhRMA Research, March 2017)

Drug Plans Profit from “Clawbacks” (CWA Health Care & Retirement Security Blog, September 13, 2016)

Painful Prescription (Fortune Magazine, October 10. 2013 - reprinted on author’s webpage)