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How Pharmacy Benefit Managers Sway Healthcare Costs

How Pharmacy Benefit Managers Sway Healthcare Costs
(Tero Vesalainen/Dreamstime)

By    |   Friday, 10 January 2020 12:07 PM

The rising cost of healthcare in America, largely driven by the cost of prescription drugs, continues to be a dominant topic on campaign trails and in the news as we enter a new election cycle.

This is an appropriate focus, as Americans pay more for prescription drugs than the citizens of any other developed nation. In many cases, they pay at least twice the cost of a drug than a consumer will pay for the same drug in the UK or Canada.

As the U.S. population ages, becomes sicker and more dependent on medicine to treat chronic conditions, reducing patient out-of-pocket costs for prescription medication will become even more important.   

Pharmacy Benefit Managers (PBMs) control and help reduce prescription drug costs.  By working with health insurance companies, pharmacies, and drug manufacturers to negotiate discounts and rebates on behalf of their clients, contracting with pharmacies to obtain purchase price concessions, and processing claims accordingly, PBMs work to maintain or reduce the pharmacy expenditures of their plan, while simultaneously striving to improve healthcare outcomes for its plan members.

This should be straightforward, but the process by which industry experts analyze and determine drug cost, inflation, and expenditure – while factoring in pharmacy discounting, rebates, generic pricing, “pay to play” deals, and other dynamics – renders the entire situation bewildering.

Consumers frequently pay into their plans and have no idea where their money is going or how it is being used. It’s a hopelessly complex process that has contributed to a public erosion in the prescription drug industry; and PBMs, as the intermediary between the drug manufacturers and pharmacies, are often blamed, whether or not it’s deserved.  

The American Medical Association published a report that said improving the system would require significant payment reforms, including, among other things, increases in pharmacy reimbursement rates for Medicaid and Medicare prescriptions.

A report from the Government Accounting Office  (GAO) found that in 2016, PBMs negotiated approximately $18 billion in rebates from drug manufacturers for Medicare Part D plans and passed all but $74 million on to the plan sponsors.

The GAO report also reviewed 20 service agreements between Medicare Part D sponsors and PBMs and found the primary source of revenue for PBMs was the volume-based fee paid by plan sponsors based on the number of paid claims the PBM processed. The report found that none of the service agreements tied these fees to the price of a drug paid to the pharmacy.

Unfortunately, to the extent that PBMs have a role, the larger, more profit-driven PBMs have gotten away from the entity’s original function: to manage the drug benefit and to help keep drug prices affordable. Practices such as pocketing excessive rebates, direct and indirect remuneration fees, and spread pricing have been poorly regulated for many years and are starting to take their financial toll – on patients.

Healthcare providers, insurance companies, and drug manufacturers must work better together. According to a study conducted by the Scripps Research Translational Institute, “it’s important for the federal government and the pharmaceutical industry to look at the abuses taking place within the current system.”

In January, the Federal Health and Human Services Department released a proposal for the removal of safe harbor protection for rebates and other fees involving prescription pharmaceuticals; a move that, if passed, would effectively ban rebates. 

We believe that the proposal will not pass in its current form, and that rebates will not be banned, but as an industry, we must do better. PBMs need to offer value-based contracting with no hidden costs, saving their clients (and therefore clients’ members) money by passing through the discounts they negotiate with both retail pharmacies and drug manufacturers, and thereby focus on improving the overall health of members.

PBMs should allow their members to see all components of their pharmacy claim data: every claim processed, what was paid to the pharmacy, and what billed to their plan. PBMS should give members access to the same pricing as is paid to the pharmacy—if not, they are not an open, honest, and completely auditable PBM.

Complete transparency is the key.

LaMar Williams is the executive vice president at MC-Rx, a full-service Pharmacy Benefit Manager (PBM) with corporate offices in Gainesville, Georgia and Caguas, Puerto Rico.

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What are PBMs and how do they play a critical role in the escalating healthcare costs in America?
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Friday, 10 January 2020 12:07 PM
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