President Donald Trump in his speech on May 11, pointed out Express Scripts and other pharmacy benefit managers (PBMs) as the biggest problem makers in the prescription drug industry. According to his statement, PBMs are the ‘middlemen’ in the system who have been getting richer and richer through rebates while depriving people of the discounts they deserve.
Previously flying under the radar, PBMs are now subjected to high scrutiny and criticism because of the widespread attention to high prescription drug prices and the manufacturers attempt to shift the blame elsewhere.
What Is the Role of a PBM?
PBMs like Express Scripts and Caremark CVS negotiate with pharma companies for lower prices, discounts, and rebates on filled prescription drugs. In return, the drug companies include their prescription drugs on their formularies.
Rather than passing on these discounts and rebates to health plans these PBMs work for, they have started to fill their own pockets. This is one of the main reasons for high prescription drug prices in the country these days.
How Are PBM’s Generating Such Profits?
According to an article published on Fortune.com, ‘a leaked contract’ with Express Scripts has revealed the details on how PBMs have been using creative strategies to secure savings for themselves. Let’s have a look:
1. PBMs Tend to Hog Rebates:
Drug manufacturers that wish to have their drugs on PBMs formularies offer a significant discount or negotiated ‘rebate’ off a drug’s list price. In theory, the majority of these rebate dollars should go towards the health plans so they can pass on these savings to the patients in the form of lower premiums. However, this is not the case these days.
As per the leaked contract, Express Scripts included so many exceptions to the ‘rebate’ that most of the negotiated discount ends up with the PBM itself.
FDA Commissioner Scott Gottlieb in one of his speeches suggested these hidden negotiations as “kickbacks”:
“To take one example, one of the dynamics I’ve talked about before that’s driving higher and higher list prices, is the system of rebates between payers and manufacturers. And so what if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the Anti-Kickback Statute? Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition.”
By increasing the prices of the drugs, the manufacturer gets more freedom to give a big rebate to the PBM. The PBM is happy, and the drug gets listed in the formulary, but unfortunately for all the consumers like us, the prescription drug prices go up.
“Everybody wins when list prices rise, except for the patient. It’s rather a startling and perverse system that has- that has evolved over time”
– Alex Azar, Secretary of Health and Human Services
2. Reclassifying Generic Drugs as Brand Name Drugs
The leaked document also revealed that Express Scripts have been reclassifying generic drugs as brand-name drugs more than often now. This is because drugs manufacturers give more discounts on generics than on brand-name drugs. PBMs buy these generic drugs at a lower price, reclassify them as brand-name drugs and then pass them along to their respective health plans at a high rate. The excess goes in the pockets of PBMs.
3. Underpaying Pharmacists:
PBMs use a rule called Maximum Allowable Cost, or MAC to determine how much to pay pharmacies and how much to bill health plans for the same drug.
Fortunately, this rule works to their benefit as it allows them to charge health plans for far more than what they pay to pharmacies. Independent pharmacies and non-chain stores are having a hard time because of this practice. They have little to no negotiating power to change the terms of a PBM contract. There is also a clause included in such contracts called ‘silencing clause’ that prohibits pharmacies from making complaints against PBMs.
The Main Reason Behind Increasing Prescription Drug Prices
There is a lack of transparency when it comes to disclosing the number of rebates and payments each entity charges or receives. There are no existing regulations or requirements that make them disclose information to the public about drug prices and rebates.
Other mechanisms that PBM uses to affect patients include “gag clauses” and “clawbacks.”
Under “gag clauses,” a pharmacist is not allowed to tell the customers about the availability of cheaper options.
And because of “clawbacks,” most of the time, patients tend to pay more in copayments than what a drug costs.
- The federal governments should require drug manufacturers and PBMs to be transparent and provide information on prescription drug prices, discounts and rebates paid.
- A national ban should be placed on gag clauses.
- Lastly, the government should ensure that consumers are not paying excessively in their insurance plans by capping the copayments.
Increasing drug prices have been contributing to unsustainable health care costs in the United States. Many people now make choices between life-saving drugs or paying the rent.
PBMs have been initially designed to make healthcare costs affordable by negotiating discounts to help patients. Today they are doing the opposite. They are not working to reduce the burden on patients… they are working to gain profits.
Now it’s high time that Congress and federal agencies take action to help patients pay lower prices and protect independent pharmacies from anti-competitive practices. Looking at the pace at which drug prices are rising, there is no time to waste.
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