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]

Contents

The role of pharmacy benefit managers includes managing formularies, maintaining a pharmacy network, setting up rebate payments to pharmacies, processing prescription drug claims, providing mail order services, 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] In 2024, The New York Times , [8] Federal Trade Commission, [9] [10] and many states Attorneys General [11] [12] accused pharmacy benefit managers of unfairly raising prices on drugs.

Additionally, several states have created regulations and policies concerning PBM business practices, however, more research must be conducted on how these regulations will affect patient outcomes. [13]

Business model

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. [14]

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. [15] This practice is known as "spread pricing". [16] The industry argues that savings are trade secrets. [17] 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. [18]

Formulary

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. [19]

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". [20] 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. [21] Since 2017, six states have passed legislation making such "gag clauses" illegal. [22] This has recently been followed by a federal bans on gag orders [23] for private insurance effective Oct 2018, [24] and for Medicare effective Jan 2020. [25]

Net effect on consumers

TheNew York Times, [8] Federal Trade Commission, [26] [27] and many states' Attorneys General [11] [12] argue pharmacy benefit managers unfairly raise prices on drugs.

A report by House Committee on Oversight and Accountability chairman, Kentucky Rep. James Comer, found that PBMs use utilization schemes to increase pricing for payers and health plans. [28]

Effects on Independent Pharmacies

PBMs regulate how much community pharmacies are reimbursed by drug companies and health insurance plans for the drugs they sell. PBMs are not required to share how these rebate rates are calculated and this can result in local pharmacies being paid back less or the same as the sticker prices of the drugs themselves. [29]

Vertical integration of PBMs can lead to a preference for PBM-affiliated pharmacies compared to unaffiliated pharmacies. Some PBMs may increase the reimbursement rates for affiliated pharmacies compared to nonaffiliated pharmacies. Because of this, nonaffiliated pharmacies compete with affiliated pharmacies in the dispensing of drugs. [30] For example, the vertical integration of the three largest PBMs, CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx, in which each owns their own insurance companies and pharmacies, allows PBMs to divert patients away from nonaffiliated independent pharmacies and toward their affiliated pharmacies. [29]

Clint Hopkins, joint owner of Pucci's Pharmacy in Sacramento, reports regularly turning away customers rather than lose money on high-end prescriptions. [31]

History

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". [32]

By the late 1980s, PBMs had become a major force "as health care and prescription costs were escalating". [33] 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). [34]

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. [35] [ 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", [32] negotiating "drug discounts with pharmaceutical manufacturers", [32] and providing "drug utilization reviews and disease management". [32] PBMs also created a formulary to encourage or even require "health plan participants to use preferred formulary products to treat their conditions". [32] In 2012, Express Scripts and CVS Caremark transitioned from using tiered formularies, to those that excluded drugs from their formulary. [1]

Market and competition

As of 2013, in the United States, a majority of the large managed prescription drug benefit expenditures were conducted by about 60 PBMs. [36] 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] [37]

As of 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark) and United Health/OptumRx/Catamaran. [38] [39] [40]

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. [41]

Express Scripts

In 2012 Express Scripts acquired rival Medco Health Solutions for $29.1 billion and became "a powerhouse in managing prescription drug benefits". [42] As of 2015, Express Scripts Holding Company was the largest pharmacy benefit management organization in the United States. [43]

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. [43]

CVS Health

The logo for CVS Caremark, one of the three largest PBM companies in the US. CVS Caremark logo.svg
The logo for CVS Caremark, one of the three largest PBM companies in the US.

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. [44]

UnitedHealth Group

In March 2015 UnitedHealth Group acquired Catamaran Corporation for about $12.8 billion to extend grow its PBM business. [45]

Controversies and litigation

PBMs have recently been subject to scrutiny mainly due to their lack of transparency regarding their complex drug pricing strategies and multiple facets of their business practices that contribute to rising drug pricing. [46]

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. [33] [ non-primary source needed ]

In 2004, litigation added to the uncertainty about PBM practices. [44] [47] In 2015, there were seven lawsuits against PBMs involving fraud, deception, or antitrust claims. [1] [48]

State legislatures have been using "transparency," "fiduciary," and "disclosure" provisions to improve the business practices of PBMs. [47]

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. [49] [ 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". [50] [ 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. [51]

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." [52]

On January 31, 2019, Health and Human Services released a proposed rule to remove the Anti-kickback Statute, safe harbor protections for PBMs and other plan sponsors, that previously allowed PBMs to seek rebates from drug manufacturers. [53] [ needs update ][ non-primary source needed ]

Ron Wyden stated 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. [54]

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. [26] [27] 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]

Bill Head, assistant vice president at the Pharmaceutical Care Management Association (PCMA), claims that “[Pharmacy benefits managers] are the only entity in the drug-supply chain that exert downward pressure on drug prices by negotiating rebates and discounts with manufacturers". [29]

Since September 2024, brand name drugs Ozempic and Wegovy, two common weight loss and anti-diabetic drugs, have been experiencing increased list prices. [55] [56] On a Tuesday in late September, a senate hearing was held where Lars Fruergaard Jørgensen, the CEO of Novo Nordisk, the Danish pharmaceutical company that owns these two drugs, expressed his concerns to several congressional leaders, including Vermont Senator Bernie Sanders, stating that PBMs are the reason for Novo Nordisk not being able to lower the list prices since PBMs may take the drug off their list if the pieces become too low decreasing access to the drug for everyone. However, this was not the case as written commitments by all three major PBMs (Caremark, Express Scripts, and Optum Rx) promised not to withdraw coverage should Novo Nordisk decide to reduce their prices. [55] [56] Following the hearing the Senate Health, Education, Labor, and Pensions Committee submitted a report on the drug pricing strategies of Novo Nordisk, from which it can be concluded that PBMs were not the cause of high prices of these drugs. [55]

PBM Regulation

  More recently, federal lawmakers have become more critical of the business practices in the PBM industry. [13] For example, gag clauses between PBMs and pharmacies regarding pricing plans were banned on a nationwide scale following the enactment of both the Patient Right to Know Drug Prices Act and the Know the Lowest Price Act in 2018. [13] [57]

Much of the controversy surrounding PBM practices has to do with how PBMs are incentivized by profits to raise drug costs. Due to this, regulators are mainly concerned with managing drug costs and pharmacy reimbursement rates. [13]

State Level Regulation

Many states have their own way of regulating PBM activities. These relate to different areas of PBM practice from managing reimbursement rates to increasing transparency about PBM business practices. In a 2022 web search conducted by Mattingly et al. it was found that "A total of 45 states implemented policies on pharmacy operations, 41 states on pricing and reimbursement, 36 states on licensure and registration, 26 on reporting requirements, and 25 on pharmacy networks". [13]

These are some ways in which states regulate drug pricing and pharmacy reimbursement funds: maximum allowable cost (MAC) lists, timely payment for pharmacy services, prevention of spread pricing, adjudication fee limit, and calculations for drug price reimbursement. [13]

Regulation in California

Knox-Keene Health Care Service Plan Act of 1975

The Knox-Keene Health Care Service Plan Act of 1975 is a set of Californian laws that regulate Healthcare Service Plans. Under these laws, pharmacy benefit managers with contracts to Health care service plans are required by law to be registered with the Department of Managed Health Care to disclose information. [58]

SB 966: Pharmacy benefits

SB 966: Pharmacy benefits is a California state bill written by state senators Aisha Wahab and Scott Weiner. It is currently in the process of becoming law. Adding on to the Knox Knee Act, SB 966 requires all PBMs to acquire licensure under the California Department of Insurance and file annual business reports disclosing information about revenue and purchaser-specific benefits. [58] SB 966 also prohibits pharmacy benefit managers from discriminating against nonaffiliated pharmacies and requiring customers to purchase from affiliated pharmacies. [29]

According to Assemblymember Devon Mathis, co-author of the bill, this would effectively reduce drug prices for consumers. [31] Additionally, the National Community Pharmacists Association reported that health insurance premiums increased by a nationwide average of 16.66% between 2015 and 2019. In states with licensing regulations, the increase in premiums was 0.3% lower than the national average, while in states without these regulations, it was 0.4% above the average. [31]

However, PBMs argue that enforcing this regulation will only drive up drug costs and increase coverage premiums for all parties. [31] The Pharmaceutical Care Management Association believes that this bill only favors community pharmacies over chain pharmacies and that all it will do is make it harder for PBMs to effectively negotiate lower drug prices with manufacturing companies. [31]

National Regulation

S.127 - Pharmacy Benefit Manager Transparency Act of 2023

The Pharmacy Benefit Manager Transparency Act of 2023, Introduced on January 26, 2023, states that pharmacy benefit managers cannot unfairly lower rebate payments to pharmacies, claw back reimbursement payments, or charge arbitrary fees. If PBMs pass all discounts to the health plan and provide them with pricing information about their services, they will be exempt from these prohibitions. Under this act, PBMs would also need to disclose information about payments from health plans to the Federal Trade Commission (FTC) through annual reports. [59]

See also

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  46. ↑ "5 Things to Know About PBMs' Influence on Drug Costs and Access". AJMC. August 2, 2024. Retrieved October 31, 2024.
  47. 1 2 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.
  48. ↑ 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.
  49. ↑ "Article" (PDF). www.cms.gov.
  50. ↑ "PBM Compensation and Fee Disclosure". www.dol.gov. Retrieved March 29, 2016.
  51. ↑ Hiltzik, Michael (June 9, 2017). "How 'price-cutting' middlemen are making crucial drugs vastly more expensive". Los Angeles Times .
  52. ↑ "Do prescription drug middlemen help keep prices high?". PBS NewsHour. August 11, 2018. Retrieved August 12, 2018.
  53. ↑ "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.
  54. ↑ "Pharmacy benefit managers face bipartisan criticism". Financial Times. April 9, 2019. Retrieved June 4, 2019.
  55. 1 2 3 "Novo CEO Reluctantly Agrees to Meet With PBMs on Ozempic, Wegovy Prices". BioSpace. September 25, 2024. Retrieved November 28, 2024.
  56. 1 2 "Library Log in". pacificatclassic.pacific.edu. Retrieved November 28, 2024.
  57. ↑ Vazquez, Maegan (October 10, 2018). "Trump signs bills aimed at increasing drug price transparency | CNN Politics". CNN. Retrieved October 21, 2024.
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