Tomorrow, the Senate Finance Committee will examine the role of pharmacy benefit managers (PBMs) in the drug cost ecosystem. For years, these Fortune 100 companies largely escaped scrutiny for their role in deciding what patients pay out of pocket for medicines, but that’s finally starting to change. Here are a few questions policymakers should ask—and issues they should focus on—as the leaders of this multi-billion dollar industry testify on prescription drug costs.
Question #1: Why aren’t more patients benefiting from drugmaker rebates?
The drug cost ecosystem is complex, with multiple players impacting what patients pay for prescription medicines. As part of that ecosystem, health plans hire PBMs to determine which medicines patients will have access to and what their out-of-pocket costs will be. Meanwhile, drugmakers set the list price for medicines, and through negotiations with PBMs, provide billions of dollars in rebates and discounts to private-health plans to help provide affordable access to the medicines patients need. It’s expected that these savings will be passed along to the patients who are purchasing these drugs in the first place, but mounting evidence proves this is often not the case.
In fact, drugmakers provided more than $45 billion in rebates to commercial health plans in 2017. According to one survey, just 4% of employer-sponsored health plans passed rebates savings along to patients at the pharmacy counter.
Question #2: If PBMs profit off higher drug prices, how does that impact patients?
It’s important to understand the role of insurers and PBMs in determining what patients pay for prescription drugs. It’s also important to understand how these middlemen create perverse incentives that ultimately lead to higher prices for medicines.
As mentioned, pharmaceutical companies provide billions of dollars in rebates and other discounts to key players across the drug cost ecosystem. But these rebates are tied to the list prices for medicines, with PBMs (and the insurers they work for) deciding how much of the rebate to keep or share with patients. This incentivizes PBMs to demand high list prices, because the higher the list price the larger the rebate. If drugmakers don’t agree to a PBM’s demand for larger rebates, patients lose access to medicines.
But it gets worse. A patient’s cost-sharing requirements—what health plans require patients to pay out of pocket—is often tied to a drug’s list price. So patients with high deductibles or coinsurance requirements are paying off of a drug’s artificial list price, while insurers and PBMs pocket the rebate. As Adam Fein of Drug Channels pointed out in a recent blog post:
“Pharmacy benefit designs have shifted out-of-pocket spending for prescription drugs from copayments toward deductible and coinsurance spending. Today, more than half of all consumer out-of-pocket prescription costs are for coinsurance or spending in a deductible. (source) Those amounts are tied to the list price, not the post-rebate net cost.”
The current system unfairly discriminates against patients who rely on prescription medicines, and it needs to change.
Question #3: Why does the PBM industry oppose a rule designed to lower patients’ out-of-pocket costs?
The administration’s proposal to ensure rebates are passed along to beneficiaries enrolled in federal programs is a worthy goal. If implemented correctly, it would help toward lowering out-of-pocket drug costs for seniors and fewer rebate dollars for PBMs and the health plans who employ them. Perhaps this explains why the PBM industry has come out against the proposal.
Reforming the drug rebate system would lower what patients are asked to pay out of pocket for the medicines they need. Here’s proof: UnitedHealthcare has been implementing a program like this for almost a year – and it has worked so well that they are expanding it. If PBMs want to make a real effort in putting patients before profits, they should support policies designed to do just that.
Questions #4: Why are PBMs gouging state taxpayers?
Across the country, PBMs are under greater scrutiny for marking up costs for prescriptions drugs and sticking state taxpayers with the tab. At issue is a tactic called “spread pricing” where PBMs reimburse pharmacies at one price, and then bill state health programs at a dramatically higher price.
In a state-commissioned report, Ohio officials found that PBMs billed taxpayers roughly $220 million more for prescription drugs than they reimbursed pharmacies to fill those prescriptions over the course of a year. Similarly, private Medicaid plans in Indiana spent more than $800 for a 30-day supply of a hepatitis B pill that cost pharmacies less than $140 to buy.
In Kentucky, the state Cabinet for Health and Family Services recently published a report exposing drug cost middlemen for their role in marking up prices for common drugs and pocketing the difference. In this case, that difference was $123.5 million, or 13 percent, of what the Kentucky state Medicaid program paid these middlemen last year.
“These are taxpayer dollars that we can’t identify what is the service they are being used for,” said Jessin Joseph, director of pharmacy for Kentucky’s Department for Medicaid Services, in a phone interview with Bloomberg News.
Question #5: Why do PBMs punish patients who receive cost-sharing assistance?
PBMs and health plans are increasingly using tactics to shift a growing portion of prescription drug costs to patients and consumers. For example, policies being enforced like “copay accumulators” prevent financial assistance provided by drugmakers from applying to a patient’s out-of-pocket maximum or deductible. This leaves patients on the hook to cover steep costs when the value of patient assistance is exhausted. A piece by Peter J. Pitts, a former FDA Associate Commissioner and President of the Center for Medicine in the Public Interest, explains how they work:
“Copay accumulators, a tool to ensure that the value of a copay card or coupon doesn’t count toward a patient’s out-of-pocket maximum expense, allows pharmacy benefit managers to further pad their pockets — but harms both patients and the public health by making lifesaving medicines unaffordable. And to make matters worse, these programs are being sold to patients as a benefit. The health care chutzpah of the PBM industry is astounding.”
PBMs benefit greatly from the system as it is currently designed and even when patient assistance programs are available, barriers are deployed that that put profits first.