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Cutting Out the Middleman
Are PBMs part of the problem or the solution?
In the war on drug prices, the middleman is in everyone’s sights.
Announcing his American Patients First blueprint earlier this year, President Trump said one of his “greatest priorities” was to reduce the price of prescription drugs. He added that a key element in delivering this ambition was “very much eliminating” the middlemen.
“The middlemen became very, very rich. Whoever those middlemen were – and a lot of people never even figured it out – they’re rich. They won’t be so rich anymore,” he said.
While neither the president nor the blueprint itself actually named these middlemen, it would be hard to remove Pharmacy Benefit Managers (PBMs) from the list of suspects, especially when Mr Trump said that the stated goal of his plan was to “end the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients.”
Yet, PBMs are no stranger to criticism. Surveys show employers are discontented with the current state of pharmacy benefit management, says David Dross, National Practice Leader, Managed Pharmacy Practice, at Mercer.
“They don’t like the structure and there’s not enough transparency so it’s not clear how drug prices are derived. There have been all sorts of bizarre situations, where someone can go into a pharmacy and pay cash for a prescription substantially cheaper than going through their plan, which makes no sense,” he says.
However, the lack of transparency may not inherently be the problem, says Nick Taylor, National Practice Leader, Consulting Services, at The Segal Group. “The PBMs are willing to share how they make money and what they are passing through to the employers, but, at the end of the day, I don’t think it really changes how they contract. There is a need for the administrative services of the PBM to process claims, negotiate with drug manufacturers and retailers, and help employers/payers to create and manage a prescription drug benefit.”
Dross agrees that anyone looking to change their business model may struggle. “We’re rapidly getting to an inflection point where employers want to do something different, but, quite honestly, they don’t have anywhere else to go. The big three PBMs – Optum, CVS and Express Scripts – have roughly 75-80 percent market share, and if they go elsewhere, that’s a pretty big drop down. There are some more transparent, smaller PBMs out there with a very open model [but] they don’t have anywhere near the scale of the big players,” he says.
Employer coalitions like the Health Transformation Alliance (HTA), take a more systematic approach. “Is it time to cut out the middleman? I don’t know,” says CEO, Robert E. Andrews. “It raises the question of how many people there should be between the producer of the service and the patient. At the HTA, we ask a different question: What value are they? If the middleman is helping educate the patient and the physician about which drug is best, then that person adds dramatic or significant value. But if the middleman is simply holding the drug in the retail store and marking it up to make a bigger profit, when it’s not the right drug for the patient, then we think that middleman ought to be eliminated.”
With possible change in the air, what alternative models are being discussed?
“We’re saying that we need to move away from the current PBM model where they are paid an administration fee for doing all the member and client service work,” says Dross. “It’s too tactical and transactional. We’re suggesting they be paid a small per-employeeper-month fee but then get paid for ‘trend control’. If they do a good job at controlling overall spend, they are paid more. The current consumption model where they’re paid more when utilization is greater is not ideal.”
With the future of the PBM hanging in the balance, what are the opportunities for pharma?
“The wildcard here is drug pricing; pharma companies have been very vocal that they don’t like the current system of high list price and high rebate,” says Dross, adding that he has started to hear people discussing whether employers should engage directly with pharma in negotiations.
“For me, that’s pretty far down the road because you’d need reform first and you’d need people in place to do it. However, I’ve been invited to talk to large pharmaceutical companies several times already this year. Over the last 12-18 months, companies have started to build ‘employer relations staff’, then calling on people like me – consultants who can act as a proxy for employers – as well as large employers themselves, to talk about new drugs coming out and why they think it should have preferred status on formularies. In essence, they’re starting to go around the PBMs.”
For Robert Andrews of the HTA, any rethink of the current system should be more radical. “We want a partnership where the question is, ‘What drug will make this person healthiest?’ not, ‘Which drug will get the biggest rebate?’ or ‘Which is the cheapest drug?’. If a person has arthritis, what’s going to give them more mobility and greater health?
“I’m not saying the pharma manufacturers or PBMs or retailers don’t ever do that, but they only do that if it fits the context of the business models that are imposed on them. Whether you view them as morally culpable or the cause of the problem, they’re playing under the rules they were given.”
Perhaps those rules are about to change.
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