“When pharmacy benefit managers [PBMs] came into being 30 years ago, they were seen as an important component of the prescription distribution system [because] they could guide benefits and money between the patient, pharmacy and the manufacturer,” says Angus Worthing, MD, president of the Alliance for Transparent & Affordable Prescriptions (ATAP).
Health insurance companies hire PBMs to negotiate discounts and rebates with drug companies to lower prescription drug costs for their embers. As time has passed, though, PBMs have increasingly implemented questionable pricing practices behind a veil of secrecy, prompting calls for action to legislate transparency and ensure savings are passed on to patients, not hoarded by insurance companies.
Founded in 2017 by the ACR and the Coalition of State Rheumatology Organizations (CSRO), ATAP has unified provider and patient organizations concerned about the role PBMs play in driving up drug costs.
“This was especially important as biologics entered the market and [prescription] costs went up,” says ATAP Secretary Howard Blumstein, MD. “The original PBM structure was fee based (i.e., the health plan paid a fee to the middleman to negotiate a lower cost). Over time, however, this morphed into a situation [in which] the PBMs hold all the power, to the detriment of patients and providers.”
Dr. Feldman
Madelaine Feldman, MD, immediate past president of the CSRO says, “After a few years of research, I began speaking on PBMs in 2016. At that time, virtually no one but the community pharmacists even knew what a PBM was. [The CSRO] basically had a PBM roadshow and managed to begin educating legislators, regulators and patient advocacy groups about them. When I was looking forward to my term as president of CSRO, I decided we should focus on this issue by helping organize an alliance that focused on the harm of PBMs, creating an organization that did not accept funding from pharmaceutical manufacturers.”
“In 2016, when we realized patients were having increasing trouble accessing their medications, I was president of the Florida Society of Rheumatology,” states Robert Levin, MD. “I brought up the issue of the PBM stranglehold at a board meeting, where we discussed how drug prices were on the rise and copays were out of reach for many patients. These PBMs had become behemoths and were controlling everything from drug selection to cost, essentially restricting access to care.”
Dr. Levin
After joining CSRO in 2017, Dr. Levin began working with the group on forming a coalition of provider and patient organizations to combat the PBMs. ATAP was born.
Tackling Goliath
“With the increasing use of biologics and targeted molecules, industry began creating step therapy tiers and formularies [i.e., preferred drug lists],” says Dr. Worthing. “Health plans began contracting with PBMs, and the latter went on to negotiate prices with the drug manufacturers. To get a preferred tier, manufacturers offer rebates on their prescriptions … and the higher the rebate, the more likely their drug will be on the top tier. Adding to the chaos is that the formularies regularly change based on rebates.”
Much of this horse trading happens in the shadows.
Dr. Worthing
“A PBM will tell a manufacturer, ‘Another company has a higher bid. Give us a higher rebate and you’ll get on the preferred tier,’” says Dr. Worthing. “The drug maker passes the expense of the higher rebate on to patients and employers in the form of higher drug prices. In these conversations, no party is discussing how various drugs [may] affect patients. Indeed, as it is now, prescriptions written in the best interest of the patient are frequently denied coverage in favor of a drug preferred by the PBM.”
How big is the problem? In 2021, three PBMs—CVS Health, Cigna (through Express Scripts),and UnitedHealth Group (through OptumRX)—managed 80% of the prescription claims in the U.S.1
Patients’ Lives Up for Bid
“Are the formulary decisions based on safety or efficacy? No,” says Dr. Feldman. “They are based on how much the drug company is willing to pay the PBM. It is a closed auction [in which the] manufacturer [that] pays the most wins. What we are dealing with is essentially a legal kickback scheme that is protected by safe harbor from the Anti-Kickback Statute.”
To keep this shell game going, says Dr. Levin, PBMs have gotten good at reclassification. “The rebate—a collection of different fees—is supposed to be passed through to the insurer or, ideally, to the patient. In order to keep the money for themselves, the PBMs reclassify many of these dollars into ‘fees.’ This entire process is completely private, and we have little information on the actual back door dealings. However, because a lawsuit was filed by Express Scripts against Kaleo Pharmacies, things were brought out in the open, and it became evident that the majority of millions of dollars was in ‘fees,’ with only a small portion being rebates.”
Evidence shows these fees have ballooned, with PBMs demanding double the amount of fees today than they did five years ago.2
“These large entities with massive financial interests have risen to powerful positions in the U.S.” says Dr. Blumstein. “And, like anyone with power, they will go to great lengths to maintain the status quo, even establishing offshore entities that are peripheral enough not to seem part of the same company—and they are largely out of reach of U.S. regulation. Sometimes it feels like we are essentially playing a game of Whac-A-Mole.”
Spreading Unfair, Obscure Practices
“ATAP is also working to end spread pricing, so that PBMs can no longer reimburse pharmacies less than what they are paid by a health plan for a drug and keep the spread for themselves,” says Dr. Blumstein. New York enacted a law regulating PBMs in 2021, and just recently, the New York State Department of Financial Services proposed new regulations that would more tightly regulate PBMs, including measures to increase transparency to consumers and employers and address spread pricing.
Mr. Cantrell
Indeed, says Joseph Cantrell, ACR director of state affairs and community relations, the cryptic and changing nature of the PBM universe renders things even more difficult. “We are always reacting to new policies and tactics on the part of the PBMs. The entire issue involves an unusual level of complexity that can leave most people confused. It takes an enormous ongoing effort to examine the supply chain and determine exactly where the manipulation is happening in the market. There is virtually no transparency in the system, however, so we don’t know where the real cost centers are—and we don’t know the true cost of the drugs.”
Taking Steps Against Step Therapy
“Now the Federal Trade Commission is looking into PBMs,” says Dr. Worthing. “We have had conversations with the investigators and have relayed how we prescribe what we think is right for a particular patient, [but] the pharmacy tells them it isn’t covered … and that they need to try one from the PBM-crafted preferred drug list. If that fails, then they can get the drug I prescribed. This step therapy draws out the time that an ineffective drug is used, essentially delaying the appropriate care. Again, the patient loses.”
Independent Pharmacies
“Another way that PBMs exert power is by steering patients to pharmacies they own,” says Dr. Blumstein. “Not only that, but they put up roadblocks in front of independent pharmacies in the form of reduced reimbursements and onerous audits. The mom-and-pop pharmacies are left out of this system and, indeed, are the other victims of PBMs.”
What You Don’t Know Can Hurt You
Patients are ultimately suffering the brunt of PBM misbehavior. “So many patients can’t afford the medicine they need,” says Dr. Worthing. “One problem is that their copay is based on the list price and not the rebated price—not on the final and lower price paid by the PBM after the kickbacks. The average patient has no idea why this is happening, and they are not sure how to contend with it.”
Going Forward
“Following a landmark decision by the U.S. Supreme Court, we have seen all 50 states pass some type of PBM reform,” says Mr. Cantrell. “Florida has a very strong PBM and drug pricing law that includes a manufacturer reporting requirement. If there is more than a 15% price increase in a calendar year or a 30% increase over three years, then they have to file a report.”
“I want Congress to pass meaningful PBM reform that could drastically reduce drug prices,” says Dr. Feldman. “We need to put an end to the days of a $10,000-a-month drug being preferred while the $350-a-month drug is excluded from the formulary. Patients will save a substantial amount of money if we can delink PBM compensation from the list price of the drug, taking away the incentive to choose higher priced drugs. This would allow formularies to be constructed on the doctor/patient relationship, safety, efficacy and lowest price—not highest kickback. Ideally, I would like all PBMs to be regulated as a public utility.”
“We absolutely must delink the price of the drug from the size of the rebate,” agrees Dr. Blumstein. “In addition, we will continue working on legislation mandating that the rebate savings are passed through to the healthcare system and/or to patients. Many states have legislation directing that a certain percentage of the rebate will be passed through. This is taking a long time, but the fact that we are getting so much attention means that people are beginning to know the behind-the-scenes dealings of the PBMs.”
“Although incremental, reform is moving well,” adds an optimistic Dr. Worthing. “ATAP is working closely with multiple patient groups, which is terrific because there are so many more patients than doctors! Rheumatologists and patients are linking arms, going to their state capitals and raising their voices.”
“There is truly strength in numbers,” says Dr. Feldman. “We are so grateful to have the ACR, the voice of rheumatology and various state organizations on board. Along with our patients, we are moving the needle on rectifying a million wrongs brought on by this corrupt system.”
Elizabeth Hofheinz, MPH, MEd, is a freelance medical editor and writer based in the greater New Orleans area.
References
- Fein AJ. The top pharmacy benefit managers of 2021: The big get even bigger. Drug Channels. 2022 Apr 5. https://www.drugchannels.net/2022/04/the-top—managers-of.html.
- Morse S. PBMs are driving up drug prices through fees, PhRMA report claims. Healthcare Finance. 2023 Sep 18. https://www.healthcarefinancenews.com/news/pbms-are-driving-drug-prices-through-fees-phrma-report-claims.
