Who Pays When Insurers Control the RX Middle-Man?

Originally Published: July 26, 2019

An exposé by Bay News 9 in the Tampa Bay area shines a bright light on the role of pharmacy benefits managers (PBMs). According to the National Community Pharmacists Association, PBMs develop and maintain formularies and other clinical management programs; process prescription drug claims for insurance companies or corporations; and negotiate contracts with pharmacies and pharmaceutical manufacturers.

With a reported profit margin of 2.9%, the PBM business model generates revenue by keeping the difference between what they charge the pharmacy and what they bill their client for the drugs. They also benefit from drug rebates, as explained in this Kaiser Health News video explaining the business of PBMs.

The group has launched a campaign to increase awareness of PBM’s role in managing the pharmacy benefits of 250 million Americans.

The Lucrative PBM Market

The days when PBMs were independently operated are fading away, and local pharmacists are alarmed. The Bay News 9 report shows many PBMs are owned by insurers and retail pharmacy giants. In May, DrugChannels.net reported, “For 2018, about three-quarters of all equivalent prescription claims were processed by three companies: CVS Health (including Caremark and Aetna), Express Scripts, and the OptumRx business of UnitedHealth.”

In its 2018 Annual Report to shareholders, CVS Health touts after its $78 billion acquisition of Aetna in late 2018, the corporation’s CVS Caremark segment is now “the nation’s largest pharmacy benefits manager” with “approximately 92 million plan members.”

PBMs are a proven revenue generator. In June, Axios reported, “CVS’ PBM arm made up about 60% of its overall revenues in 2018.” Motivated by concerns that online retail giant Amazon is moving into the health care arena, including its acquisition of full-service pharmacy PillPack, earlier this year CVS filed suit to block a former PBM vice president from taking a job with PillPack.

Non-Traditional Players Disrupting Health Care

The move by Amazon, CVS, and other companies into the health care and pharmaceutical sector are making providers nervous. HealthExec.com reports in Kaufman Hall’s 2019 Healthcare Consumerism Survey, 88 percent of health care leaders surveyed say non-hospital competitors pose a competitive threat to hospitals and health systems.

“Many hospitals and health systems remain focused on a brick-and-mortar model of offering consumers access to their providers,” Dan Clarin, senior vice president, strategic and financial planning at Kaufman Hall, said in a statement. “Consumers are accustomed to the convenience of being able to access the goods and services they need on their smartphones, tablets, and computers. Healthcare organizations that want to connect with new or potential consumers should adapt their delivery models to remain relevant in an increasingly digital environment.”

Under the Microscope

As policymakers explore increasing transparency in prescription drug pricing, the role of PBMs is under the microscope. Drug pricing is also the subject of litigation.

In its Q1–2019 Form 10-Q filing with the U.S. Securities and Exchange Commission, CVS Health says it has “received subpoenas, CIDs, and other requests for documents and information from, and is being investigated by, Attorneys General of several states regarding its PBM practices, including pricing and rebates.”

In March 2019, in a dispute with hospital giant HCA Holdings CVS Health inherited in its Aetna acquisition involving out-of-network benefit payment and administration practices, a Florida appellate arbitrator reduced a $150 million decision in favor of HCA Holdings to $86 million.

CVS Health is not alone in the defense chair. The website PBM Watch notes America’s major PBMs are facing class-action lawsuits featuring accusations of “clawbacks of consumer copays; fraud; misrepresentation to plans, patients, and providers; unjust enrichment through secret kickback schemes; and failure to meet ethical and safety standards.”

Do Insurance-Run PBM Benefit Consumers?

PBM operators say the corporate acquisitions cut costs and reduce consumer costs.

A report by HealthCareDive.com says “By combining both the medical and pharmaceutical benefit under one umbrella, analysts say you can potentially achieve greater costs savings than may have been possible with separate entities.”

During a recent meeting of the U.S. Senate Finance Committee, U.S. Sen. Ron Wyden of Oregon (the committee’s ranking member) scoffed at the claim and said, “If PBMs had clear, hard evidence proving that they’re getting patients a better deal on prescription drugs, they’d be leafleting the countryside and shouting it from the rooftops.”

In a guest column for Morning Consult responding to Sen. Wyden’s comments, JC Scott, president and CEO of the Pharmaceutical Care Management Association says, “There is overwhelming evidence showing that PBM negotiations generate significant savings for government programs, health plans and consumers. From 2016 to 2025, PBMs will save $654 billion on prescription drug costs. Every day, PBMs are saving consumers and health plan sponsors an average of $123 per brand-name prescription.”

Consumer advocates beg to differ.

“PBMs have a financial vested interest in the highest drug list prices possible in order to maximize the rebates they demand from drug manufacturers, through spread pricing, and via so-called “DIR Fees” they extort from pharmacy providers,” said Ted Okon, executive director of Community Oncology Alliance earlier this year. “PBMs sit in the shadows of our health care system and do nothing for patient care while siphoning off billions of dollars in fees and dictating patient access to care.

In 2018, PBS NewsHour examined PBMs and their impact on independent pharmacists.

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Using a customer’s prescription for the diabetes drug Metformin, Long Island, NY pharmacist Howard Jacobson described to the NewsHour how costs can go up when you insert the PBM middleman into the equation. In this example, the customer’s dose of Metformin cost $1.61. The pharmacist said he would charge $4 for the prescription, leaving him with a profit of $2.39.

According to the report, when a customer pays through an insurance plan, a PBM enters the equation. Under a payment arrangement with the PBM, the customer is charged $10.84. The pharmacist gets $1.93 from the transaction and the PBM takes a “clawback” of $8.91.

In the former scenario, the entire $4.00 transaction (conducted in a traditional out-of-pocket fashion that is as 1920 as it is 2020) the independent pharmacist makes $2.39. Add the PBM into the mix and pharmacist takes a $0.46 loss over what could have been earned in an out-of-pocket transaction.

That’s a drop of nearly 20% for the independent pharmacist while the customer pays 37% more to purchase medication through insurance.

Here’s another way to look at it: small, independent pharmacists serving heart-of-the-country communities are paying a nearly 20% “PBM tax” to gain access to consumers in insurance networks.

To add insult to injury, many of those honest, true-blue, and hard-working customers likely would still go to that same hometown pharmacy, if their insurance company would free the pharmacists so they can share the facts.

Some might say this is a predatory “PBM tax” that:

• Sticks consumers with higher prices;
• Rips dollars from vulnerable small businesses;
• Weakens the community’s economy;
• Cracks open the door for big-box retailers to creep into the market; and
• Ultimately sacrifices good-paying local jobs to the benefit of the titans of global industry and commerce.

Pharmacists Gagged by PBM Contracts

So, why don’t consumers know about the option to purchase medication out-of-pocket? The ModernMedicine Network points to so-called ‘gag clauses’ that “prevent pharmacies from sharing with patients the most cost-effective option when purchasing medications.”

Dr. Trevor Royce, who authored a 2011 article for the Journal of the American Medical Association on PBMs and rising prescription drug costs, told the ModernMedicine Network, “These [gag rules] prevent a pharmacist from informing the patient if the out of pocket cash payment for a prescription would be less expensive than obtaining access to the drug through the patient’s health insurance drug benefit coverage.”

Congress took aim at the issue in 2018. The Patient Right to Know Drug Prices Act passed and signed by President Trump prohibits insurance plans or PBMs from restricting a pharmacy from informing an enrollee of any difference between the out-of-pocket cost of a drug under the plan and the cost of the drug without health insurance coverage.

Still, it’s up to the consumer to ask their pharmacist about out-of-pocket payment options versus buying their prescription medication through insurance.

On one side are powerful players in the health care sector who control access to hundreds of millions of Americans covered by health insurance. On the other side stand independent pharmacists looking to fairly compete and stay in business.

Policymakers across the country are considering proposals to increase drug pricing transparency. Ohio Gov. Mike DeWine last week vetoed provisions in the state’s health care budget involving two of the state’s PBMs.

Still, observers caution states can only do so much. The real fight is at the federal level.

“States are limited in power in this area,” said Rachel Sachs, a health law expert at Washington University in St. Louis School of Law told Governing.com. “But one of the impacts of these efforts is to put pressure on the federal government and force it to justify its actions to stymie the states.”

U.S. Sen. Bill Cassidy of Louisiana is a physician and serves on the Senate Finance Committee. He says, “Getting rid of loopholes and incentives lowers drug costs for patients and for taxpayers.”

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During a February hearing, Sen. Cassidy questioned pharmaceutical company executives about drug costs and the need for the value of a drug to be better reflected in its price.

“In the international pricing index, if the U.S. were paying 1.3 times the market basket of developed countries — a Germany, a France, a Canada, not smaller countries — we would still be paying more than they but it would still have some relationship with reasonableness. And right now it seems Medicare, in the absence of being able to judge value, is almost a price taker when it shouldn’t be as the largest purchaser.”