WHAT ARE PBMs AND ARE THEY GOOD INVESTMENTS?

The journey of a pharmaceutical product from the factory to your body can be full of twists and turns. Indeed, the US healthcare system has been criticized for being convoluted, opaque, and expensive.

What is a Pharmacy Benefit Manager?

Pharmacy Benefit Managers, play a vital role in healthcare. They contract with major players in the pharmaceutical supply chain, from drug manufacturers and insurance companies to retail pharmacies. When PBMs were created, their original purpose was to save time for insurance companies by processing patient prescriptions on their behalf. PBMs quickly realized they could grow their business. Now they also help patients achieve their health goals and control the cost of their medications.

PBMs provide a wide variety of services. One of them includes the mail order pharmacy. After a pharmacist verifies the prescription, automated machines package and labels the prescriptions, which are then shipped to patients' homes. This is beneficial for patients who have lifelong illnesses and limited access to transport. PBMs also develop their own formularies, which are lists of drugs covered by health insurance. Formularies determine how much patients will pay for which drugs are under their insurance plan. In other words, PBMs determine which drugs patients should take by limiting their choices. Doctors are likely to prescribe drugs that are on the formulary because they are the most affordable, even if they are not the best drugs for the patient. Is it ideal? No, but the price is important.

One of the main tasks of pharmacy benefit managers is to enter into contracts with pharmaceutical companies. Because PBMs serve more than 266 million Americans, they have superior buying power and can earn volume discounts just like you do at Costco. Drug manufacturers give PBMs a discount, which is a certain percentage of the drug cost, for listing their drugs on the formulary. It's a win-win. PBMs get a discount and the drug manufacturer can sell more drugs by listing their drugs on the formulary. Discounts incentivize PBMs to list one manufacturer's drug rather than another manufacturer's. PBMs may also be inclined to list the most expensive drug on their formulary because higher reimbursement means higher profit.

PBMs claim to pass these savings on to patients, helping them pay for the drugs. But is it really true? If so, why are the drugs becoming more expensive? A study looking at the relationship between drug price changes and patient spending cleared up some of that confusion. For patients paying a co-payment for prescription drugs (flat rates), their out-of-pocket expenses did not increase when drug prices increased. However, it was different for patients who pay deductibles, which is the amount the patient is responsible for paying before the insurance company kicks in. For this patient population, rising drug costs led to a 15% increase in spending from January 2015 to December 2017. Drugmakers and PBMs do not disclose the number of discounts they provide, so It can be unfair to jump to conclusions. However, when the study put the two and the two together, there was no evidence that PBMs passed on these discounts to help patients pay for their medications. In fact, as seen here, prescription drugs are expected to be even more expensive.

In addition to contracting with pharmaceutical manufacturers, PBMs also contract with independent pharmacies and drugstore chains. The pharmacy dispenses the drug and, in return, receives reimbursement from PBMs for the drug and for its dispensation. Finally, PBMs work with a variety of health plans, including commercial health insurers, self-insured employers, Medicaid, and Medicare Part D to administer drug benefit plans on your behalf.

So you might be wondering, how does PBM affect me? Well, it wouldn't be an overstatement to say that they determine the cost of the drugs. It is not the pharmacist who tells you how much you have to pay for the medicine. It's the PBM, and the pharmacist is just the messenger.

In general, PBMs have three sources of revenue: administrative fees from various health plans, rebates from drug manufacturers, and pharmacy "spreads" - the difference between what health insurance pays PBMs and what PBM pay. PBMs are attracting attention due to a lack of transparency in their practices and the continued rise in prescription drug prices. This controversy even led to a Supreme Court hearing with Arkansas on efforts to regulate PBMs. However, there are a few reasons why PBMs will probably never close. In fact, the size of the PBM market in the United States is expected to surpass $700 billion in revenue by 2025.

1. PBMs have full access to all of their patient data, which could be used to dramatically improve patient outcomes. PBMs have a consistent database of patient information such as medical history, medication adherence rates, and doctor visits. Using this data, PBM can help provide patient-specific digital solutions to improve their overall health. For example, Express Scripts has a mobile app where patients can easily access their medication list, order refills for home delivery, set up dosing reminders, and make payments. These features increase medication compliance rates and save patients multiple trips to the pharmacy. Additionally, PBMs have the ability to make treatment recommendations based on patient-specific health factors.

2. The rapid growth of specialty drugs for rare diseases will increase the demand for PBM. There is great enthusiasm for all innovative immunotherapies, gene therapies, and cancer drugs that will save lives. However, its price tags won't be that exciting, to say the least. The purchasing power of PBMs is needed to negotiate prices with drug manufacturers. In addition, the expansion of specialty pharmacy will accelerate in the years to come. Breakthrough specialty drugs will enter the market for patients with rare diseases, for which there are currently no drugs available. Specialty pharmacies work with PBMs to provide a full range of patient-centered clinical services to improve the safety, quality, and affordability of care.

3. The PBM business model will shift from fee-for-service to value-based care. This new model encourages retail pharmacies and drug manufacturers. It holds them accountable for the quality of their products and services. For example, a PBM negotiates the price of a certain drug with the drug manufacturer on behalf of the insurance plan. If it leads to the expected results, such as an improvement in the patient's condition, then the health plan will pay the negotiated price. However, if the patient has serious and unexpected side effects, the drug manufacturer will have to pay the price. Thus, this leads to a more reasonable pricing approach and a wider choice of forms. It also promotes patient-specific care by avoiding over-prescription and wasted medication.

3 PBM Stocks to Look Out For

Three PBMs have a lot of control, accounting for around 77% of the market share in 2020. This means that 77% of prescriptions in the United States were filled by just three PBMs. Because these three PBMs already have so much control over the market, it is highly unlikely that another PBM will come close. The three PBM stocks to watch are CVS Caremark, Express Scripts, and OptumRx. They are like Verizon, T-Mobile and AT&T wireless carriers.