PBM in healthcare and how it affects drug spending

We often forget that behind every health plan is another entity known as the Pharmacy Benefits Manager (PBM). PBMs are behind the scenes to determine which drugs and benefits are included in an organization's drug plan.

What is a PBM?

A pharmacy benefits manager, or PBM, manages and administers the drug benefit program under an employer-sponsored health insurance plan. Essentially, a PBM is a broker whose job is to help employers get the most out of their drug plan. Contrary to common understanding, drug benefits are administered by a separate entity outside of the health plan provider. PBMs will cover all prescription drug claims and develop the list of drugs covered by the plan. This plan is also known as the drug formulary.

What do PBMs do?

The main responsibility of a PBM is to ensure that employees have access to the right medications and are thus able to maintain a better state of health. PBMs have various responsibilities, such as:

• Negotiation of offers and discounts

• Statement management

• Management of all distribution details

• Provide additional pharmacy benefits and services

• Conduct any drug utilization reviews.

PBMs often negotiate with large pharmacies to offer employers competitive prices and a wide range of drugs. They can also offer advice to employers on which drug plan would be best for them, as well as which clinical programs they might need to access.

Using a PBM also opens up a greater number of pharmaceuticals. In this way, employees will have access to a greater quantity of drugs. PBMs can help mitigate rising prescription costs. Because they are establishing large networks of pharmacies, patients will have better access to medicines.

What are the two types of PBM contracts?

When looking to work with a PBM, you will need to consider a number of factors, all of which can help you determine which type of contract will best suit your needs and the needs of your organization. The two types of contracts to consider are a traditional contract and a transparent contract.

In a traditional contract, many PBMs will not pass on rebates given by manufacturers. This is problematic because, more often than not, these discounts are intended to support prescription discounts. These contracts also include rebates, which are essentially ways for PBMs to collect excess money from prescriptions. For example, if a patient needs a drug that costs less than the copayment amount, the PBM can charge the amount that exceeds the cost of the prescription. Finally, these contracts often lack transparency. Essentially, they hide drug and prescription costs from patients, who then have no way of knowing the reason for high prescription costs.

Transparent contracts are exactly what they sound like: a PBM that confirms allegiance to ethical and transparent practices. They will base their prices on the actual price instead of hiding the costs by using discounts and hoarding rebates. These PBMs will transfer all reimbursements to the insurance company. In turn, they will charge an administrative fee to bring in the money. This is called a "pass".

How are PBMs paid?

PBMs are paid in a variety of ways. As mentioned above, they are paid by withholding refunds, using recoveries, and collecting administrative fees. They can also use what is called "differential pricing". This is when a PBM actually charges a plan sponsor or insurer more for a drug than it actually paid the pharmacy. The excess money is then pocketed by the PBM and is known as the spread.

Are PBMs subject to specific regulations?

The recent Supreme Court decision in Rutledge v. The Pharmaceutical Care Management Association (PCMA) has increased awareness of PBM practices and encouraged stricter guidelines and regulations at the state level. As of 2021, more than 20 states have implemented legislation that would help specifically regulate PBM practices and reimbursements.

According to the NCPA, PBMs have a wide scope for abuse because states have a relative lack of comprehensive oversight. This leaves patients and pharmacies with little or no means to prevent or sanction abuse.

PBMs will also regularly check pharmacies for incorrect payments, but it is unclear to what extent. Some auditors are paid based on the number of discrepancies discovered. This opens the door to another conflict of interest.

There are very few legal obligations that prevent PBMs from conducting their business as they wish. They are not required to disclose reimbursements from drug manufacturers, so it is difficult to monitor the accuracy of their expenditures. It also means that they can essentially hoard money without revealing the exact amounts they pay to pharmacies. The insurer pays them an amount and they are not required to reveal the difference between this price and what they pay to the pharmacies.

Should PBM practices be more transparent?

The current configuration of the reimbursement system incentivizes PBMs to include more expensive drugs instead of newer, cheaper drugs. Indeed, big pharmaceutical companies will offer attractive discounts that will benefit PBM. It is therefore particularly difficult for new drugs at low prices to break into the market. The effect of discounts seems to create an increase in drug prices. If newer, more affordable products never reach the patient, there is no way to compare them to more expensive drugs. For this reason, the Federal Trade Commission issued a statement in an effort to further investigate what could be considered unethical inducements.

Recently, the Food Industry Association has partnered with several other organizations, including the National Community Pharmacists Association (NCPA), AIDS Health Care Foundation, National Federation of Independent Businesses, Coalition of State Organizations of Rheumatology, and Community Oncology Alliance to monitor PBM. closer. The primary goal of this coalition is to create greater transparency between PBM business practices. They want to be aware of the general practices of these organizations to ensure that fair practices are used.

One of the biggest problems with PBMs is the monopoly they create. Three PBMs control more than 76% of the market: CVS Health, Express Scripts, and OptimumRx. Several of these larger PBMs also have their own pharmacies. This in turn presents a conflict of interest. When these PBMs push patients to use their own pharmacies, they virtually eliminate independent pharmacies by eliminating discounts with these pharmacies.

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