Unexplained drug cost increases are the epicenter of some of the most polemic conversations in US health policy today.
Unexplained drug cost increases are the epicenter of some of the most polemic conversations in US health policy today. Raw material shortages, manufacturing issues, and generic drug market mergers and acquisitions are just some of the explanations pharmacy stakeholders posit to be responsible for the volatility.
But with about 80% of the prescription benefits market being controlled by just 3 pharmacy benefits managers (PBMs), namely Express Scripts, CVS, and OptumRx, many have expressed concern that the market has become dependent on anticompetitive behavior that may put upward pressure on prices. Formal federal inquiries have been launched to investigate the conventional PBM business model, but in the meantime, alternative models have started to emerge in the marketplace.
The pharmacy benefit version of the “fee-only financial adviser” has emerged in response to a desire among certain pharmacy stakeholders to bring true transparency to the drug pricing process. Although all PBM contracts with clients are viewable by both parties, PBMs operating under the traditional model often employ contractual wording that allows for pricing and reimbursement mechanisms that render clarity of expenditure and actual cost drivers to be elusive, and are designed to maximize the overall margin or “spread” for the PBM. Under the fiduciary model, contracts negotiated between PBMs, clients, and pharmacies are designed to be as understandable and transparent as possible, which, ostensibly, is meant to encourage the best therapeutic outcomes and financial interests for the clients (and their clients, enrollees, and patients).
There are fewer inherent conflicts of interest under a fee-only fiduciary model. There is no additional margin gained from favorable tier placement on high-cost/revenue drugs. Coverage and pricing considerations are limited to the cost-benefit of the therapy itself, eliminating agency cost.
Kent Thomas, cofounder of Pharmatrix, a PBM that champions the fiduciary model, explained to Pharmacy Times that any profits from this model come solely from fully disclosed administration fees. “The money paid to us by the client is completely disclosed, [and we get] not 1 cent more. There are no hidden fees, no stockholders,” he explained.
Meanwhile, traditional PBMs regularly engage in “spread pricing,” a strategy in which profits, obtained from price markups on generic prescriptions, are undisclosed to the client. This costs plan sponsors billions of each year, and it is completely legal.
National Community Pharmacists Association president and Blackrock Pharmacy owner Bradley J. Arthur, RPh, testified before the US House Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law about what he described as the “undue influence” traditional PBMs have on patients, health plan sponsors, and pharmacies.
“Small community pharmacies like mine are faced on a daily basis with the impact of PBMs’ disproportionate market power,” Arthur said. “…The current situation and overall business climate that exists, in which market power is increasingly concentrated in an ever-shrinking number of corporations … makes me apprehensive.”
Although frustration with the status quo is evident, the market capitalization of traditional PBMs, which exceeds $30 billion, represents one of the major challenges for the fee-only financial advisor model. “The challenge is getting people to know [the fiduciary model] is an option,” Thomas told Pharmacy Times. “The traditional model has been in place for over 30 years, and that visibility sometimes works against us. Sometimes it’s financial, sometimes it’s political.”
Beyond visibility, traditional PBMs are steadfast in their argument that their market share is precisely the key to keeping drug prices low for patients. Amy Bricker, RPh, vice president of retail contracting and strategy at Express Scripts, and Natalie Pons, CVS Health senior vice president and assistant general counsel, both argued that their scale and negotiating power translate into direct savings.
“Our scale helps level the playing field [and] also allows us to drive a hard bargain and lower costs for patients, clients, and taxpayers,” Dr. Bricker testified at the US House Subcommittee hearing. Larger, traditional PBMs can negotiate larger volume discounts than individual plans.
Thomas counters that evidence also exists that the fee-only financial advisor model also generates savings for clients. “It’s well documented,” he told Pharmacy Times, “and the results are irrefutable. Normally, we see 18% to 20% cost savings associated with improved outcomes for the patients.”
As for the future, Thomas believes that the market will push pharmacy stakeholders toward the fee-only financial adviser model in pharmacy benefits administration, despite the scale and influence of traditional PBMs. He attributes this to the added pressures for cost reduction and improved patient outcomes outlined in the Affordable Care Act (ACA). Pharmacy benefit is one of the fastest-growing components of the total health care bill.
“One of the really positive things about [the ACA] is that people controlling the financials of a company are much more engaged than they used to be with respect to health because it’s a giant expense now,” Thomas said. “CFOs are seeing there are a lot of ways to improve their efficiencies.” CFOs and other stakeholders have a vested interest in ensuring that health care plans are sustainable, and pharmacy benefits management is a key element of cost sustainability. Pharmacy claims can be pulled in almost real-time, and Thomas believes this will push more individuals into questioning the traditional PBM model.
“A savvy market will win the day,” he asserted.
This article is published in collaboration with the Directions in Pharmacy CE Conference program.