Pharmacy Benefit Managers(PBMs) like Express Scripts and CVS use spread pricing to make money but are these PBMs now using this spread pricing to their advantage? Want to know more? Find out below:
What is ‘Spread Pricing’?
PBMs that practice spread pricing charge their sponsors/clients more for a prescription drug than what they actually pay to the pharmacies. This difference in the amount billed and the amount paid by the PBMs to the pharmacy is what makes up the revenue for them.
Question is, should there be such a huge difference in those amounts that they can make hundreds of thousands of dollars in profit? Let’s dig in deeper:
How Spread Pricing Works
Let me explain it to you with the help of an example:
- Let’s say a pharmacy buys a prescription drug bottle for $5.
- A patient comes and fills the prescription of that drug using their employer-provided insurance.
- Now the PBM of that insurance company will pay $7 to the pharmacy to cover the cost for the pills, allowing the pharmacy to bank $2 as profit.
- The PBM will then also bill the employer for the pills, $14 in this example.
- The difference in what the PBM paid the pharmacy and what it billed the employer is the ‘spread’ which remains with the PBM.
- This way the PBM ends up making a significant profit through spread pricing.
Generic Drugs and Spread Pricing
90% of all prescriptions dispensed in the U.S are generic drugs, and unfortunately, they are also the ones most affected with spread pricing. Generic pills are quite cheap when compared to their brand name versions, but because of the big spreads, their prices are now also increasing.
Spread Pricing Results in Higher Consumer Costs
Spread pricing is mostly understood by health planners and brokers. Employees and consumers paying health bills were mostly unaware of this practice until now.
Spread pricing has a significant impact on health plan costs. It is one of the main reasons why prescription drug prices are getting so expensive.
“In an analysis of pharmacy and middleman markups in Medicaid plans around the country, Bloomberg found big spreads on dozens of drugs, and evidence that the spreads are growing. For many widely used generic drugs, state insurance plans are collectively paying millions of dollars in fees to private companies.”
Clearly spread pricing results in higher consumer costs.
PBM Pricing Practices Have Generated Lawsuits
UnitedHealth Group’s PBM, OptumRx has been accused by four hundred independent pharmacies for manipulating its generic drug price lists to fill its pockets.
In July of 2017, West Virginia cut out PBMs, including Express Scripts and CVS, from its Medicaid managed-care program. According to a state spokeswoman, they expect to save $30 million a year by running the program themselves. Eliminating spreads and reducing administrative costs helped them save about 4 percent of the state Medicaid drug spending.
Also in June 2018, Pennsylvania’s auditor general reviewed PBM practices in that state’s Medicaid program and cited a lack of oversight into how they determine prices.
Despite the criticism and public awareness, the PBMS are still not putting an end to this spread pricing practice. Although it has been a common practice in the PBM marketplace for years, the impact on costs and quality of care is now more significant.
“The PBMs have found they can do it and get away with it,” says Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. “The way that spread pricing is being done these days, generics don’t always save you money.”