How Huge Pharma and PBMs Affect Your Health Care

Decisions That Impact the Medicine You Get

How Huge Pharma and PBMs Affect Your Health Care
January 14, 2015

Have you ever heard of a pharmacy benefit manager (PBM)? Probably not, but you may know of Express Scripts or CVS Caremark. Both are forms of a PBM, the intermediary between drug companies and health care plans.

Health care plans often contract out the prescription-drug coverage component of their plans to PBMs, which in turn use the purchasing power of multiple health plans to negotiate deals with pharmaceutical companies.

In theory, PBMs make the health care system more efficient and less expensive by striking cost-effective deals with drug manufacturers. Visante, a health-care consulting group, estimated in 2011 that the collective savings to employers, Medicare, and health care consumers from PBMs could approach $2 trillion from 2012-2021.

In practice, this is difficult to confirm and raises a few concerns.

  • Contractual Loopholes – To save costs, PBM contracts contain “maximum allowable cost” (MAC) clauses that cap payment schedules for specific drugs or classes of drugs. These caps may seem reasonable, but are not always straightforward.

    PBMs typically retain favorable contractual rights such as the ability to exclude certain drugs, manipulate the MAC level at will, and set up different MACs for different clients. It is not uncommon for payments to be based on the lesser of several options that are designed to increase profits for the PBM.

    Health care providers may fight back by negotiating that all listed prices reflect actual costs plus some reasonable profit margin for the PBM. In the end, whoever has the greater leverage wins. Hint: It usually is not the consumer.

  • Lack of Transparency – You may be able to find a retail price from a drug company and compare it to the cost to you and your health care plan, but you cannot usually determine how much the PBM paid for the drug.

    A PBM audit outlined in a USA Today report from March 2014 gave one example with 20 mg doses of Lipitor. Employers paid $21.60 per month, with slightly under half of that cost retained by the PBM ($10.77). The unknown here is what the PBM paid for Lipitor.

    You can see how much the PBM saved you, but you have no way to know how much of the savings was passed on to you and how much was kept by the PBM as profit. PBMs are understandably reluctant to release this information, and often claim it as confidential.

  • Decision-Making Powers – PBMs have enormous power to make or break expensive new drugs when options are available.

    For example, Express Scripts recently chose Viekira Pak from AbbVie as the only supplier of hepatitis C medicine, shunning a competing medication from Gilead known as Sovaldi. Both drugs are over $80,000 for a full treatment regimen, but AbbVie offered a significant discount to swing the deal.

    Both drugs are considered effective. However, with only one option available through the PBM, patients have no reasonably economic choice if they suffer side effects from the use of Viekira Pak.

So are PBMs a help or a hindrance to the cost efficiency of the health care system? They may be either, or even both. PBMs have powerful leverage that they can use with drug companies to lower cost. Unfortunately, the transparency is not always present to guarantee that a reasonable amount of those savings is passed on to consumers.

The Affordable Care Act may bring government into this issue as more medical costs, including prescription drugs, are paid by government entities. Let’s see what happens if and when legislators start regulating and shining more light on PBM practices.

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