Large PBMs Balk at Push to Reduce Drug Prices

In a move that exemplifies the potential conflict of interest that some large pharmacy benefit managers have, the nation’s largest PBM earlier this year said it would demand that rebates remain unchanged when drug makers roll out new price cuts.

Drug makers earlier in the year said they would start reducing prices as well as the rebates they pay PBMs to appease lawmakers and the Trump administration, saying it would reduce the cost of medicine for patients.  

But not long after the announcement, the nation’s largest PBM, United Healthcare, fired off a letter to drug companies telling them that if they planned to reduce prices and rebates they would have to give seven quarters of notice (that’s 21 months if you’re counting) when they intend to lower prices.

The letter, which was confirmed in news reports in the health care trade press, highlights what many critics say is an inherent conflict of interest among some of the large PBMs operating in the country.

Some background

When PBMs first came on the market, the services they offered were processing pharmacy claims and negotiating discounts on medications for the health insurance companies with which they contracted.

Later though, they found a new way to make money: rebates. They would approach two manufacturers that made similar versions of a drug and play them off against each other to elicit the largest rebate they could. Whichever one offered the larger rebate would have their pharmaceutical placed on the drug plan’s formulary.

The problem is that these large PBMs do not pass on the full rebate to their clients, like health insurance companies and health plan enrollees. Instead, they keep most of the rebate for themselves. As a result, PBMs with this business model are not motivated to include the lowest-priced drug on their formulary, but rather the one for which they can receive the largest rebate check.

The latest

United Healthcare sent out the letter to drug makers after pharmaceutical manufacturer Sanofi S.A. said it would cut the price of its cholesterol-lowering drug Praluent by 60%. It did so after its competitor Amgen Inc. reduced the price of its cholesterol drug Repatha by the same amount.

United Healthcare’s demand that drug companies give 21 months’ notice when they plan to reduce prices has caught many drug makers off guard, since many of them have been looking to cut prices as pressure mounts on the industry from Washington.

The dominance of United Healthcare’s PBM OptumRX and its competitor Express Scripts means that group health plan enrollees are often left at their mercy, as many large health insurers have contracts with them.

If a drug company does not give the rebate that a large PBM demands, it could lose access to patients – and patients lose access to that drug. The only way to play the game is to offer a larger rebate and increase prices, which in turn increases the prices that patients have to pay.

Fortunately, there are a number of smaller PBMs in the marketplace that have different business models that take payers’ needs into consideration and aim to reduce the out-of-pocket costs for patients. They contract with employers and insurers directly to make this happen.

Drug Prices, Employee benefits, Pharmaceutical Inflation

Retail prescription drug spending grew 36% over the four-year period ended Dec. 31, 2016, but out-of-pocket spending for health plan enrollees remained steady, according to a recent study by the Pew Charitable Trusts.

The study, “The Prescription Drug Landscape, Explored,” found that patients are covering the lion’s share of the cost through higher premium outlays, while large pharmacy benefit managers are passing on a larger portion of the manufacturer rebates they receive to insurance plans.

The study found health plan enrollees have largely been sheltered from rapidly rising drug costs due to:

  • More of the health insurance premium being dedicated to pharmacy benefits. The percentage of health insurance premiums allocated to pharmacy benefits increased to 16.5% in 2016 from 12.8% in 2012.
  • Policies that cap out-of-pocket expenses.
  • Cost-sharing assistance from manufacturers (like Medicare Part D coverage gap discounts and copay coupons).

Overall health retail prescription drug spending grew to $341 billion in 2016 from $250.7 billion in 2012. Here’s who spent what:

Patients: $103.8 billion – This includes the percentage of the premium they pay that goes towards drug benefits, in addition to out-of-pocket spending.

Employers: $97.5 billion – The premiums that employers pay that go towards drug benefits.

Government: $139.8 billion – This is both federal and state spending on retail drug coverage through Medicare Part D, Medicaid fee-for-service, and the share of premiums for retail drug coverage in Medicaid managed care.

Employers have grown increasingly concerned by the rapidly increasing cost of medications and the effect on the premiums they and their employees pay.

The National Business Group on Health in 2018 surveyed 170 large employers and found that:

  • 14% said the pricing and rebate system needed to be more transparent,
  • 35% said rebates needed to be reduced,
  • 50% said the pharmaceutical supply chain was inefficient and too complex and needed to be overhauled and simplified.
  • 56% said rebates were not an effective tool for helping drive down costs.
  • 53% said rebates did not benefit customers at the point of sale.

Tackling drug costs

The National Business Group study also looked at what employers are doing to combat drug costs, including:

  • Adopting recently developed capability by pharmacy benefit managers to pull rebates forward at the point-of-sale to benefit consumers.
  • Implementing point-of-sale rebates to benefit the enrollees.
  • Educating employees about the value of buying generic, so they can save money for you and themselves. According to the Federal Drug Administration, generic medications save more than $150 billion annually.
  • Half-tablet programs – These programs aim to reduce the number of tablets participants consume, while still receiving the same strength of medication. For instance, individuals might need 15 milligrams of a daily medication, so they receive a prescription for 30 tablets. With the half-tablet program, individuals would receive a prescription for 15 tablets, with 30mg strength each.
    Instead of taking one daily, they would only take half of a tablet. Despite the higher-strength pills, participants in this program only pay half of their usual prescription copay because they are receiving half the number of tablets. Likewise, individuals who pay coinsurance would be paying a smaller percentage for fewer tablets.