Tony Hagen is senior managing editor for The Center for Biosimilars®.
It’s same old, same old when it comes to pharmacy benefit manager (PBM) contracts despite much touted reforms, authors of a review contend.
A review of changes in business practices by pharmacy benefit managers (PBMs) states that apparent reforms have been undermined by behind-the-scenes arrangements that locked in outsized profits for these organizations and undermined efforts at greater value for health care consumers and other stakeholders.
These practices have stalled placement of biosimilars on formulary and slowed uptake, giving preference to more costly originator drugs, the authors argued.
“With few exceptions, biosimilar uptake among PBMs has been slow. Formulary decisions on brand drugs, sometimes touted as innovative cost-saving measures, are often unrelated to clinical value and may be implemented for products without any available comparative evidence of clinical or cost-effectiveness, suggesting that rebates influence them,” the authors wrote.
Business as Usual
In 2019, PBMs responded to “intense public criticism” by introducing measures designed to increase transparency and reduce costs for health plan sponsors; however, the PBM business models that introduced changes that were “mostly cosmetic,” the authors pointed out.
They contend that PBMs have managed to retain a hefty “spread” between what they pay pharmacies for prescription volume and what they collect from employers. In Florida Medicaid programs in 2018, the state’s 5 largest PBMs “collected 28% of prescription drug profit despite dispensing only 0.4% of claims,” partly by shifting business toward PBM-owned pharmacies, the authors stated.
Many contract provisions and terms in PBM contracts may obscure the true picture of where the money is flowing, they said.
“PBM contracts with payers typically lack important detail about revenue received from manufacturers and pharmacies, drug-pricing methods, and dispensing costs at PBM-owned versus community pharmacies. Without such information, plan sponsors may be unaware of financial misalignments, such as whether the pharmacy network has been chosen based on the lowest cost to the plan sponsor or the highest financial yield to the PBM,” the authors said.
“Plan sponsors may also be unaware that multiple sources of manufacturer revenue may be excluded from the 100% pass-throughs they receive or that the PBM may use a separate group purchasing organization to aggregate and distribute rebates, potentially allowing additional revenue retention,” they wrote.
It Wasn't Always This Way
PBM contracts have evolved significantly since the 1980s when they provided important advantages for employers, such as pharmacy carve-outs, or tailored reimbursement, and automated claims processing and favorable discounts for mail order, the authors described. PBMs acquired greater influence with the rapid increase in drug spending caused by blockbuster drug launches, coverage expansions, and broader definitions of chronic diseases. Gradually, key business arrangements such as network contracting, price negotiation, and formulary coverage were delegated to PBMs.
Employers have become heavily dependent on PBMs for leverage over manufacturer cost increases. The US price of adalimumab is 96% higher than in the United Kingdom (2 syringes, $2669 vs $1362, respectively), and the US price of bevacizumab is 736% higher (400 mg, $3930 vs $470), the report said.
“Pricing is based on what the market will bear, not on the producer’s cost,” the authors stated. Passage of the Affordable Care Act resulted in rapid increases in specialty drug costs because it mandated coverage “in every US pharmacopeia class and included no price controls,” they said.
The authors recommend that plan sponsors gain insight into how PBMs are functioning by “following the money” and paying close attention to “conflicted revenue streams and information asymmetry.”
PBMs have faced recent congressional inquiry over their practices. In June 2020, the Pharmaceutical Care Management Association (PCMA), which represents PBMs, fought back with a survey that said 93% of employers (9 in 10) “are satisfied with their PBM, including more than a third who are ‘very satisfied.'"
“Our survey finds that benefit managers are overwhelmingly satisfied with their organization’s PBM, saying that the contracts are transparent, and that PBM programs are effective at reducing their organization’s drug costs,” said Dan Judy, vice president at North Star Opinion Research, which conducted the survey on behalf of the PCMA.
Motheral BR, Fairman KA. Changes in PBM business practices in 2019: true innovation or more of the same? J Manag Care Spec Pharm. Published online September 1, 2020. doi:10.18553/jmcp.2020.20213