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Pharmacy benefit management

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In the United States, a pharmacy benefit manager (PBM) is a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans.[1][2] PBMs operate inside of integrated healthcare systems (e.g., Kaiser Permanente or Veterans Health Administration), as part of retail pharmacies (e.g., CVS Pharmacy), and as part of insurance companies (e.g., UnitedHealth Group).[1]

The role of pharmacy benefit managers includes managing formularies, maintaining a pharmacy network, setting up rebate payments to pharmacies, processing prescription drug claims, and managing drug use. PBMs play a role as the middlemen between pharmacies, drug manufacturers, wholesalers, and health insurance plan companies.[3]

As of 2023, PBMs managed pharmacy benefits for 275 million Americans. As of 2023, The three largest PBMs in the US, CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx, make up about 80% of the market share and cover approximately 270 million people.[4][5]

This consolidation and concentration has led to lawsuits and bipartisan criticism for unfair business practices.[6][7] By 2024, The New York Times,[8] Federal Trade Commission,[9][10] and many states Attorneys General[11][12] have accused pharmacy benefit managers of unfairly raising prices on drugs.

Business model

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In the United States, health insurance providers often hire an outside company to handle price negotiations, insurance claims, and distribution of prescription drugs. Providers which use such pharmacy benefit managers include commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans.[1] PBMs are designed to aggregate the collective buying power of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs. PBMs negotiate price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and mail-service pharmacies which home-deliver prescriptions without consulting face-to-face with a pharmacist.[13]

Pharmacy benefit management companies can make revenue in several ways. First, they collect administrative and service fees from the original insurance plan. They can also collect rebates from the manufacturer. Traditional PBMs do not disclose the negotiated net price of the prescription drugs, allowing them to resell drugs at a public list price (also known as a sticker price) which is higher than the net price they negotiate with the manufacturer.[14] This practice is known as "spread pricing".[15] The industry argues that savings are trade secrets.[16] Pharmacies and insurance companies are often prohibited by the PBM from discussing costs and reimbursements. This leads to lack of transparency. Therefore, states are often unaware of how much money they lose due to spread pricing, and the extent to which drug rebates are passed on to enrollees of Medicare plans. In response, states like Ohio, West Virginia, and Louisiana have taken action to regulate PBMs within their Medicaid programs. For instance, they have created new contracts that require all discounts and rebates to be reported to the states. In return, Medicaid pays PBMs a flat administrative fee.[17]

Formulary

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Main article: Formulary (pharmacy)

PBMs advise their clients on ways to "structure drug benefits" and offer complex selections at a variety of price rates from which clients choose. This happens by constructing a "formulary" or list of specific drugs that will be covered by the healthcare plan. The formulary is usually divided into several "tiers" of preference, with low tiers being assigned a higher copay to incentivize consumers to buy drugs on a preferred tier. Drugs which do not appear on the formulary at all mean consumers must pay the full list price. To get drugs listed on the formulary, manufacturers are usually required to pay the PBM a manufacturer's rebate, which lowers the net price of the drug, while keeping the list price the same.[18]

The complex pricing structure of the formulary can have unexpected consequences. When filing an insurance claim, patients usually are charged an insurance copayment which is based on the public list price, and not the confidential net price. Around a quarter of the time, the cost of the insurance copayment on the list price is more than the entire price of the drug bought directly in cash. The PBM can then pocket the difference, in a practice known as a "clawback".[19] Consumers can choose to buy the drug in cash, but in their contracts with pharmacies, PBMs would forbid pharmacists from telling consumers about the possibility of buying their medication for a cheaper price without an insurance claim, unless consumers directly ask about it.[20] Since 2017, six states have passed legislation making such "gag clauses" illegal.[21] This has recently been followed by a federal bans on gag orders[22] for private insurance effective Oct 2018,[23] and for Medicare effective Jan 2020.[24]

Net effect on consumers

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The New York Times,[8] Federal Trade Commission,[25][26] and many states Attorneys General[11][12] argue pharmacy benefit managers unfairly raise prices on drugs.

History

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In 1968, the first PBM was founded when Pharmaceutical Card System Inc. (PCS, later AdvancePCS) invented the plastic benefit card.[1] By the "1970s, [they] serve[d] as fiscal intermediaries by adjudicating prescription drug claims by paper and then, in the 1980s, electronically".[27]

By the late 1980s, PBMs had become a major force "as health care and prescription costs were escalating".[28] Diversified Pharmaceutical Services was one of the earliest examples of a PBM which came from within a national health maintenance organization United HealthCare (now United HealthGroup).[29]

In August 2002, the Wall Street Journal wrote that while PBMs had "steered doctors to cheaper drugs, especially low-cost generic copies of branded drugs from big pharmaceutical companies" from 1992 through 2002, they had "quietly moved" into marketing expensive brand name drugs.[30][clarification needed]

In 2007, when CVS acquired Caremark,[1] the function of PBMs changed "from simply processing prescription transactions to managing the pharmacy benefit for health plans",[27] negotiating "drug discounts with pharmaceutical manufacturers",[27] and providing "drug utilization reviews and disease management".[27] PBMs also created a formulary to encourage or even require "health plan participants to use preferred formulary products to treat their conditions".[27] In 2012, Express Scripts and CVS Caremark transitioned from using tiered formularies, to those that excluded drugs from their formulary.[1]

Market and competition

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As of 2013, in the United States, a majority of the large managed prescription drug benefit expenditures were conducted by about 60 PBMs.[31] Few PBMs are independently owned and operated. PBMs operate inside of integrated healthcare systems (e.g., Kaiser Permanente or Veterans Health Administration), as part of retail pharmacies, major chain drug stores (e.g., CVS Pharmacy or Rite-Aid), and as subsidiaries of managed care plans or insurance companies (e.g., UnitedHealth Group).[1][32]

As of 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark) and United Health/OptumRx/Catamaran.[33][34][35]

As of 2022, Caremark Rx, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems were the six largest public PBMs that control 95% of the market, while the top three control 80% of the market.[36]

Express Scripts

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In 2012 Express Scripts acquired rival Medco Health Solutions for $29.1 billion and became "a powerhouse in managing prescription drug benefits".[37] As of 2015, Express Scripts Holding Company was the largest pharmacy benefit management organization in the United States.[38]

In October 2015 Express Scripts began reviewing pharmacy programs run by AbbVie Inc and Teva Pharmaceuticals Industries Ltd regarding the potential use of tactics that "can allow drugmakers to work around reimbursement restrictions" from Express Scripts and other insurers. These reviews resulted from investigations into "questionable practices" at Valeant Pharmaceuticals International Inc's partner pharmacy, Philidor Rx Services.[38]

CVS Health

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In 2011 Caremark Rx was the nation's second-largest PBM. Caremark Rx was subject to a class action lawsuit in Tennessee, which alleged that Caremark kept discounts from drug manufacturers instead of sharing them with member benefit plans, secretly negotiated rebates for drugs and kept the money, and provided plan members with more expensive drugs when less expensive alternatives were available. CVS Caremark paid $20 million to three states over fraud allegations.[39]

UnitedHealth Group

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In March 2015 UnitedHealth Group acquired Catamaran Corporation for about $12.8 billion to extend grow its PBM business.[40]

Controversies and litigation

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In 1998, PBMs were under investigation by Assistant U.S. Attorney James Sheehan of the federal Justice Department, and their effectiveness in reducing prescription costs and saving clients money was questioned.[28][non-primary source needed]

In 2004, litigation added to the uncertainty about PBM practices.[39][41] In 2015, there were seven lawsuits against PBMs involving fraud, deception, or antitrust claims.[1][42]

State legislatures have been using "transparency," "fiduciary," and "disclosure" provisions to improve the business practices of PBMs.[41]

A 2013 Centers for Medicare & Medicaid Services study found negotiated prices at mail order pharmacy to be up to 83% higher than the negotiated prices at community pharmacies.[43][non-primary source needed]

A 2014 ERISA (Employee Retirement Income Security Act of 1974) hearing noted that vertically integrated PBMs may pose conflicts of interest, and that PBMs' health plan sponsors "face considerable obstacles in...determin[ing] compliance with PBM contracts including direct and indirect PBM compensation contract terms".[44][non-primary source needed]

In 2017, the Los Angeles Times wrote that PBMs cause an inflation in drug costs, especially within the area of diabetes drugs.[45]

United States Secretary of Health and Human Services Alex Azar stated regarding PBMs, "Everybody wins when list prices rise, except for the patient. It’s rather a startling and perverse system that has evolved over time."[46]

On January 31, 2019, Health and Human Services released a proposed rule to remove Anti-kickback Statute, safe harbor protections for PBMs and other plan sponsors, that previously allowed PBMs to seek rebates from drug manufacturers.[47][needs update][non-primary source needed]

Ron Wyden said in April 2019 that they were as “clear a middleman rip-off as you are going to find”, because they make more money when they pick a higher-priced drug over a lower-priced drug.[48]

In June 2024, the New York Times released its first article in a series critiquing pharmacy benefit managers for artificially raising drug prices.[8]

In July 2024, the Federal Trade Commission released an interim report on its 2-year investigation into pharmacy benefit managers, many of which it accuses of raising drug prices due to conflicts of interest, consolidation and other factors.[25][26] It looks likely to sue as soon as August 2024.[12] As of July 2024, states that have already filed suits against PBMs include Vermont, California, Kentucky, Ohio and Hawaii.[6]

See also

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References

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  1. ^ a b c d e f g h Feldman, Brian S. (March 17, 2016). "Big pharmacies are dismantling the industry that keeps US drug costs even sort-of under control". Quartz. Retrieved March 29, 2016.
  2. ^ Gryta, Thomas. "What is a 'Pharmacy Benefit Manager?'". Wall Street Journal. ISSN 0099-9660. Retrieved March 29, 2016.
  3. ^ Mattingly, T. Joseph, II; Hyman, David A.; Bai, Ge (November 3, 2023). "Pharmacy Benefit Managers: History, Business Practices, Economics, and Policy". JAMA Health Forum. 4 (11): e233804. doi:10.1001/jamahealthforum.2023.3804. ISSN 2689-0186.{{cite journal}}: CS1 maint: multiple names: authors list (link)
  4. ^ "Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies". Federal Trade Commission. July 9, 2024. Retrieved November 18, 2024.
  5. ^ "5 Things to Know About PBMs' Influence on Drug Costs and Access". AJMC. August 2, 2024. Retrieved November 18, 2024.
  6. ^ a b Pierson, Brendan (July 18, 2024). "Vermont latest state to sue PBMs for allegedly driving up drug prices". Reuters.
  7. ^ Gibson, Kate (July 9, 2024). Lee, Anne Marie (ed.). "FTC says prescription middlemen are squeezing Main Street pharmacies". CBS News. Retrieved August 14, 2024.
  8. ^ a b c Robbins, Rebecca; Abelson, Reed (June 21, 2024). "The Opaque Industry Secretly Inflating Prices for Prescription Drugs". The New York Times. ISSN 0362-4331. Retrieved August 14, 2024.
  9. ^ Weixel, Nathaniel (July 9, 2024). "FTC report slams pharmacy 'middlemen' for seemingly driving up prices, limiting access". The Hill.
  10. ^ Abelson, Reed; Robbins, Rebecca (July 8, 2024). "F.T.C. Slams Middlemen for High Drug Prices, Reversing Hands-off Approach". The New York Times.
  11. ^ a b Chatlani, Shalina (August 15, 2024). "To lower prescription drug costs, states head to the courthouse". Stateline (news). Retrieved August 18, 2024.
  12. ^ a b c Sisco, Josh (July 10, 2024). "Feds poised to sue pharmacy gatekeepers over high drug costs". Politico.
  13. ^ "Pharmaceutical Care Management Association". www.spcma.org. Retrieved March 29, 2016.
  14. ^ "The Prescription Drug Landscape, ExploredA look at retail pharmaceutical spending from 2012 to 2016". Pew Charitable Trusts. March 8, 2019. Retrieved April 12, 2019.
  15. ^ Jack Torry (April 9, 2019). "Bipartisan leaders of Senate panel call for federal probe of PBMs' pricing methods". The Columbus Dispatch. Retrieved April 9, 2019.
  16. ^ Sarpatwari A, Avorn J, Kesselheim AS. An Incomplete Prescription.President Trump’s Plan to Address High Drug Prices. JAMA. 2018;319(23):2373–2374. doi:10.1001/jama.2018.7424
  17. ^ Riley, Trish; Lanford, Sarah (April 3, 2019). "States on the Front Line: Addressing America's Drug Pricing Problem". Journal of Legal Medicine. 39 (2): 81–93. doi:10.1080/01947648.2019.1645544. ISSN 0194-7648. PMID 31503529.
  18. ^ Laura Entis (April 9, 2019). "Why Does Medicine Cost So Much? Here's How Drug Prices Are Set". Time. Retrieved April 12, 2019.
  19. ^ Megan Thompson (August 19, 2018). "Why a patient paid a $285 copay for a $40 drug". PBS Newshour. Retrieved April 12, 2019.
  20. ^ Susan Jaffe (May 29, 2018). "To Lower Your Medicare Drug Costs, Ask Your Pharmacist For The Cash Price". NPR. Retrieved April 12, 2019.
  21. ^ Richard Cauchi (March 14, 2018). "Prohibiting PBM "Gag Clauses" that Restrict Pharmacists from Disclosing Price Options Recent State Legislation 2017-2018" (PDF). National Conference of State Legislatures. Archived from the original (PDF) on March 21, 2018.
  22. ^ Maegan Vazquez (October 10, 2018). "Trump signs bills aimed at increasing drug price transparency". CNN. Retrieved April 13, 2019.
  23. ^ Pub. L. 115–263 (text) (PDF)
  24. ^ Pub. L. 115–262 (text) (PDF)
  25. ^ a b Aboulenein, Ahmed (July 9, 2024). "Explainer: Why are US pharmacy benefit managers under fire?". Reuters.
  26. ^ a b Whyte, Liz Essley (July 9, 2024). "Big Pharmacy-Benefit Managers Increase Drug Costs, FTC Says". Wall Street Journal. Retrieved August 14, 2024 – via MSN.
  27. ^ a b c d e Allison Dabbs Garrett; Robert Garis (2007). "Leveling the Playing Field in the Pharmacy Benefit Management Industry". Valparaiso University Law Review. 42 (1): 34. Retrieved October 31, 2015.
  28. ^ a b Brierton, Janet (December 24, 2003). "Pharmacy Benefit Managers". Hartford, CT: Connecticut General Assembly. Retrieved December 27, 2015.
  29. ^ Kongstved, Peter Reid (1995). Essentials of Managed Health Care. Vol. 1. p. 304.
  30. ^ Martinez, Barbara (August 14, 2002). "Pharmacy-Benefit Managers at Times Toil for Drug Firms". The Wall Street Journal. Retrieved December 27, 2015.
  31. ^ Shepherd, Joanna (July 2013). "Is More Information Always Better? Mandatory Disclosure Regulations in the Prescription Drug Market". Cornell Law Review Online. 99. SSRN 2234212.
  32. ^ Danzon, Patricia (June 29, 2014). "2014 ERISA Advisory Council: PBM Compensation and Fee Disclosure" (PDF). Retrieved March 29, 2016.
  33. ^ "OptumRx". OptumRx. Retrieved June 20, 2018.
  34. ^ Catamaran. "Catamaran Shareholders Approve Acquisition by UnitedHealth Group". www.prnewswire.com (Press release).
  35. ^ "Pharmacy-Benefit Managers – The Short Answer". Wall Street Journal. March 30, 2015.
  36. ^ "FTC Releases Interim Staff Report on Prescription Drug Middlemen". Federal Trade Commission. July 8, 2024. Retrieved July 12, 2024.
  37. ^ Sierra, Michelle (July 22, 2011). "Express Scripts takes $14 billion bridge loan". Reuters. Retrieved October 31, 2015.
  38. ^ a b Beasley, Deena (October 30, 2015). "Exclusive: Beyond Valeant, U.S. payers scrutinize other drugmaker ties to pharmacies". Los Angeles: Reuters. Retrieved November 1, 2015.
  39. ^ a b Pfeifer, Stuart (December 16, 2011). "Money & Company". Los Angeles Times. Retrieved January 17, 2014.
  40. ^ "The Short Answer: Pharmacy-Benefit Managers". The Wall Street Journal. March 30, 2015. Retrieved October 31, 2015.
  41. ^ a b Stan Finkelstein; Peter Temin (2008). Reasonable Rx: Solving the Drug Price Crisis. Upper Saddle River, New Jersey, USA: FT Press. p. 208. ISBN 978-0-132344494.
  42. ^ Balto, David A. (November 17, 2015). "The State of Competition in the Pharmacy Benefits Manager and Pharmacy Marketplaces" (PDF). House Judiciary Subcommittee on Regulatory Reform, Commercial, and Antitrust Law. Retrieved March 29, 2016.
  43. ^ "Article" (PDF). www.cms.gov.
  44. ^ "PBM Compensation and Fee Disclosure". www.dol.gov. Retrieved March 29, 2016.
  45. ^ Hiltzik, Michael (June 9, 2017). "How 'price-cutting' middlemen are making crucial drugs vastly more expensive". Los Angeles Times.
  46. ^ "Do prescription drug middlemen help keep prices high?". PBS NewsHour. August 11, 2018. Retrieved August 12, 2018.
  47. ^ "Public Inspection: Fraud and Abuse: Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees". Federal Register. Retrieved January 31, 2019.
  48. ^ "Pharmacy benefit managers face bipartisan criticism". Financial Times. April 9, 2019. Retrieved June 4, 2019.
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