American pharmacies across the nation are struggling as a result of pharmacy benefit manager (PBM) practices.
American pharmacies across the nation are struggling as a result of pharmacy benefit manager (PBM) practices. As discussed in part one, PBMs generate revenue through negotiated rebates, pharmacy spread, and administration fees. As a result, PBMs are making billions of dollars a year with little to no federal regulation or oversight. The lack of transparency and regulation has created an environment where unethical business tactics are being employed to drive PBM profits up and lead to increased drug costs that ultimately harm pharmacies and patients.
Contracts negotiated with PBMs often include profit sharing provisions, however, due to the lack of transparency, revenues are often difficult to identify and track.1
A 2012 survey of the impact of PBMs contracting and auditing practices on community pharmacies revealed that 96.2% of independent community pharmacy respondents felt that a typical PBM contract has minimal or no transparency on how generic pricing is determined.2 Furthermore, almost 50% of respondents said that PBMs set reimbursement for generics below the acquisition cost to the pharmacy more than 10% of the time.2 The PBMs argue against regulation for disclosure and transparency requirements, citing it will lead to increased prices, decreased competition (plan sponsor/PBM and pharmacies/PBM), and increased administrative costs due to data analyzation not currently required.1 However, American pharmacies contest this, using Medicare Part D (MPD) benefits as an example. Since the creation of MPD in 2006, all MPD plan sponsors have been required to disclose rebates and other price concessions to the Centers for Medicare and Medicaid Services (CMS). In fact, reported rebates, expressed as a percentage of overall MPD drug costs, have held steady each year and were estimated to increase from 8.6% in 2006 to 16.8% in 2016.1 Therefore, disclosure requirements, properly protected by confidentiality clauses, do not necessarily impair a PBMs ability to negotiate competitively.1
Drug pricing is also a major concern among pharmacists and pharmacies within the United Sates.
The ‘maximum allowable cost’ (MAC) is utilized by commercial payers (including PBMs) and government payers to link reimbursement for a particular drug product.1 The purpose of this reimbursement method is to incentivize the use of generic drugs since brand-name drugs will be reimbursed at the generic price.1 In recent years, the volatility of the drug pricing market has caused drug list MACs to vary widely leading to frequent undercompensation of the pharmacy. A 2014 survey by NCPA showed that more than 85% of respondents reported that it could take a PBM or other payer up to 6 months to update their reimbursement rates for generic drugs.1 This is problematic for pharmacies that often see generic drug pricing that changes on a weekly or even daily basis. As a result, 33 states have implemented legislation similar to CMS Medicare Part D requirements for MAC pricing updates.3 It is important to note that the MAC prices did not create the price volatility in the generic market, but pharmacies being paid based upon an updated MAC price prior to adjudication, in a timely manner, will help prevent pharmacies from being under paid due to large price fluctuations.1
Direct and indirect remuneration (DIR) fees are another component that are muddying the waters of drug pricing. In today’s pharmacy environment, DIR fees encompass a multitude of types of fees including ‘pay to play’ for network participation and periodic reimbursement reconciliations.
Essentially, it’s another revenue stream for the PBM to collect additional funds after adjudication, citing that DIR fees cannot be determined at the point of sale. It is theorized that DIR fees may have become more popular in recent years (especially in commercial plans) to combat the MAC transparency legislation that has been enacted in multiple states. As a result, PBMs keep their required published MAC prices at the higher rates and on the back end of an established reconciliation period reduce their overall aggregate reimbursement for generic drugs that further hides the true reimbursement amounts to the pharmacy.4
In addition to specific pharmacy concerns, PBM practices also have direct effects on patients at the pharmacy. In the United States, PBMs control the pharmacy benefits of more than 253 million people. Furthermore, with the changing landscape of health care due to consolidations, 3 PBMs now control 78% of the prescription drug benefits within the United States.5 PBMs argue that they are helping to lower drug costs for plan sponsors and patients, but prescription drug benefits keep increasing.
Since 1987, total spending on prescription drugs in the US has increased by 1010% from $26.8B to $297.6B; while price inflation increased by 125.9% in the same time period.5 PBMs also try to argue that patient’s out-of-pocket expenses as a percentage of total prescription drug spend have been decreasing. However, when you factor in the amount of money consumers are actually paying for prescriptions, their out-of-pocket costs have risen 169% since 1987.5 What’s more, PBMs dictate which medications will be covered by the plan sponsor and at what rate the pharmacy will be reimbursed. This creates a major conflict of interest since they can also dictate which pharmacy a patient can use their benefits at. If a patient does not go to a preferred pharmacy, they often have to pay even higher copays or pay out-of-pocket. These preferred networks further play into the PBM’s profits while restricting access to care for patients and beneficiaries for pharmacies. In some cases, patients are forced to go through the PBMs self-owned mail-order-pharmacy or their medication will not be covered at all.
In conclusion, the lack of federal regulation and transparency has created an environment where PBMs can leverage their ‘middle-man’ status to the detriment of pharmacies and patients. In doing so, they negotiate contracts that serve to increase their profits through access to plan beneficiaries, complex and confusing drug pricing processes, and post adjudication fees. These PBM tactics often lead to under compensation of product for pharmacies and limited recourse for timely price adjustments. Patients are also negatively impacted by limited formularies, increased drug prices, and restricted pharmacy access that can potentially lead to worse outcomes. Proposed solutions for the concerns levied with respect to PBMs will be addressed in part three of this article series.
Brittany Hoffman-Eubanks, PharmD, MBA, is Public Relations Co-Chair for the Illinois Pharmacists Association.
1. Applied Policy. Concerns regarding the pharmacy benefit management industry. www.ncpa.co/pdf/applied-policy-issue-brief.pdf. Published November 2015. Accessed October 10, 2017.
2. National Community Pharmacists Association. Survey of Community Pharmacies Impact of Pharmacy Benefit Manager (PBM) Contracting and Auditing Practices on Patient Care. National Results 2012. www.ncpanet.org/pdf/leg/sep12/pbmsurvey0912final.pdf. Published September 2012. Accessed November 2017.
3. National Community Pharmacists Association. 2012 — 2017 NCPA State Legislative Update. www.ncpa.co/pdf/ncpa-state-leg-update.pdf. Accessed November 11, 2017.
4. National Community Pharmacists Association. Frequently Asked Questions (FAQs) About Pharmacy “DIR” Fees. www.ncpa.co/pdf/faq-direct-indirect-remuneration-fees.pdf. Accessed November 2017.
5. National Community Pharmacists Association. The PBM Story. www.ncpanet.org/advocacy/pbm-storybook. Accessed October 10, 2017.