The impact of drug reimbursements on consumer prices and retail pharmacy operations

The Federal Trade Commission (FTC) recently shed light on how the US drug reimbursement system is hampering competition and driving up prices. Drug discounts encourage conditions that increase costs and reduce patient choice. According to the FTC, the "reimbursement wall" phenomenon creates a host of negative outcomes.

What are Refund Walls?

Discount walls are when drug manufacturers tie discounts to sales volume. Those with higher purchasing power can take advantage of discounts. The lure of these discounts allows drug manufacturers to receive preferential treatment for certain drugs. As a result, the significant revenue generated from these drug sales results in even greater reimbursement revenue for insurers and Pharmacy Benefit Managers (PBMs).

Specifically, PBMs are meant to benefit patients by negotiating better drug prices and establishing drug lists that specify which drugs are available to insured patients. However, PBMs exert control over the pharmaceutical market, using reimbursement barriers to their greatest advantage. Pharmaceutical companies pay large sums of money in rebates to PBMs to ensure that their drugs are on the PBM formulary. Discounts are usually a significant percentage of the list price offered by the pharmaceutical company, sometimes as high as 50%. Therefore, PBMs are motivated to include more expensive drugs on the formulary, receiving higher reimbursement in the process. They do not pass these savings on to consumers.

Insurers and PBMs, reluctant to lose this revenue, ultimately prefer more expensive drugs, preventing lower-cost competition from bringing their products to market. Higher drug prices place a burden on patients with higher costs.

How are pharmacies affected?

Under the current discount system, pharmacies, especially independent pharmacies, are negatively affected. PBMs are gaining power because of their ability to determine which pharmacies are included in a drug plan's network, as well as the amount reimbursed to those pharmacies for dispensing the drug. Patients end up paying more for the drugs through their copays, and the independent pharmacy receives less reimbursement from the PBM who benefits from the reimbursement. Due to the control exercised by PBMs, independent pharmacies that refuse to participate may be subject to increased scrutiny through audits and even termination, preventing them from serving their patients. Reimbursement walls also force patients to receive more expensive drugs, thereby reducing opportunities for patients to receive the appropriate, lower-cost care they need.

The problem of reimbursement could be solved by a legislative amendment. The recent FTC report on the subject has been acknowledged by Congress. Both parties have identified discount walls as a major problem and barrier to competition and patient health. Prompted by the FTC report, congressional lawmakers could take action on current drug reimbursement.

Meanwhile, it is the independent pharmacies that are fighting for patients and these misleading practices. Pharmacies are forced to reject PBMs as they process their audits and contract terminations; they also play a major role in lobbying state legislation to remove PBM controls from the system.