Villains of Health Care Series #1: PBMs

The Villains of Health Care Series #1: Pharmacy Benefit Managers

Fellow DPC physicians please remember that the enemy of price transparency is thine enemy.  Be forewarned - these topics are difficult to understand (this is by design), and the links provided within are rather voluminous.  If you are a DPC physician that plans to work with large employers your ability to launch disruptive innovation into this system will correlate with your understanding of it.  I have spent years attempting to wrap my head around these issues, so hopefully each of you will find this crash course to be a useful summary & introduction.  This first article in a three part series will focus on Pharmacy Benefit Managers - one of the three most influential opponents of price transparency.

Pharmacy Benefit Managers (PBMs) were designed to negotiate lower prices for prescription medications and pass those savings along to the payers (employers, patients, and health plans).  Doing this in an honest manner and respecting their fiduciary duty to these various players was not all that lucrative so the PBMs shrugged off their fiduciary duties and began taking undisclosed margins and kickbacks from both sides of the equation, negotiating mainly on their own behalf, making certain to complicate pricing arrangements as much as possible to keep all other parties in the dark.  If the true cost of a medication were known this would shine a light on the fraud taking place, so the PBMs hide the costs at every turn.

The three largest PBMs (CVS Caremark, Express Scripts, Optum Rx) control roughly eighty percent of the market.  They use this control to dictate what should be on a specific formulary.  They make a living ensuring a lack of price transparency. They get information from manufacturers, retail pharmacies, and health plans and then charge everyone exorbitant markups for their alleged "services." Pharmacies have a good idea about this fraud are "sworn to secrecy" as described in this Chicago Tribune article.  

Even the large insurance companies hate PBMs - so much so that they are suing them for billions of dollars or are purchasing them to get rid of an entity they view as an unwanted middle man. In only six lawsuits (hopefully with many more to come) PBMs have paid out $371.9 million in damages to states, plans, and patients.  Twenty years ago Express Scripts was a $1 Billion revenue company, but now they have over $100 Billion in revenue per year.  

What are the four most common techniques used to bilk consumers?

1) Maximum Allowable Cost - this is the maximum amount that an insurance sponsor will pay for a medication.  No two MAC lists are the same from one PBM to the next, and these lists (the price for every med) change on a daily basis in arbitrary ways.  One list is for the dispensary and the other list is what they will charge the plan.  This variance in price is not disclosed.  

2) "The Spread Game" - charge the health plan $100 and pay the pharmacy $10. This is a simple (and outright) lie.  The health plan (or patient) thinks the medication costs $100 because the PBM claims that was the price, even though the PBM only paid the pharmacy $10.

3) "The Repackaging & Repricing Game" - mail order pharmacies (owned by the PBMs) are used so that the the PBM can reprice the exact same medication at a higher amount.  Even though your percentage discount is higher, since the discount is off of a higher base amount you pay the PBM more money in total.  PBMs have bullied local pharmacies in many ways, and at times have denied a medication request at the local pharmacy and then called the patient to offer coverage - but only via their own mail order pharmacy (at a higher total cost to the plan).

4) Rebate Game - The PBM directs the formulary toward medications where the manufacturer offers a rebate.  The rebate does not go to the patient or the health plan - rather it goes to the PBM. A single 12 week prescription for Harvoni, a medication that cures Hep C, will cost around $90,000 according to GoodRx.  At least $2,000, and maybe as much as $20,000 of the $90,000 paid for the medication will goes to the PBM in the form of a rebate.  

How can you fight back?  Cut out the PBMs in every way possible.  They don't add value and should be eliminated.  Here are three ways:

1) Dispense medications in your office by purchasing medications directly from Andameds or another wholesaler listed here.  

2) When prescribing and sending patients to another location, use GoodRx coupons and direct the patient to an independent pharmacy (such as Marley Drug).  When the patient pays cash and doesn't go through the plan this minimizes the usage of a the PBM.

3) Encourage patients to consider the total cost of "using" their employer provided health plan benefits (which generally means using PBMs).

For a more detailed understanding, please review the following resources:

Comparing Pharmacy Benefit Managers: Moving Well Beyond the Simple Spreadsheet Analysis - this is the best one stop PBM overview from David Calabrese, RPh.

The man behind the curtain in drug price increases - this is a letter to the editor from Congressman (and pharmacist) Buddy Carter

This is an older PBM fiduciary duty and price transparency overview.

Here is an excellent Business Insider article by Linette Lopez.

These videos are also helpful:

Congressman Doug Collins Highlights Abuse by Pharmacy Benefit Managers

Congressman Buddy Carter Accuses PBM’s of Price Fixing

Rep. Carter Participates in a Special Order on Pharmacy Issues (Part 1)

Rep. Carter Participates in a Special Order on Pharmacy Issues (Part 2)