Dr John M. O'Brien Highlights Critical Role of Rebates in Employer Benefit Choices

John M. O'Brien, PharmD, MPH, president and CEO of the National Pharmaceutical Council, discusses the recent public scrutiny around pharmacy benefit managers (PBMs) and drug rebates, along with his related study published last month in The American Journal of Managed Care^® (AJMC^®), titled, "Prescription Rebate Guarantees: Employer Insights."

He highlighted that the study gained the attention of Mark Cuban, co-founder of the Mark Cuban Cost Plus Drug Company, who shared it on X.

This transcript has been lightly edited for clarity.

Transcript

Could you begin by discussing the current public scrutiny surrounding PBMs? What are the public's biggest concerns?

For 30 years now, there's been increasing attention on high drug prices. But it's only been in the last decade or so that we've begun to see a focus on the middlemen and their role. As a pharmacist, I know that when patients, like my mom, talk about drug prices, they're talking about the price they're charged at the pharmacy counter; that's more part of the insurance card that's in their wallet than anything else.

To an employer, when they talk about drug prices, they're referring to the price that the insurer charges them. The more policy makers have looked into this topic, the more they've discovered that we have a really complicated system, and it actually causes drug prices to go up, not down. More than 50 cents of every dollar of what we call drug spending in the United States is actually going to someone other than the manufacturer.

So, as Congress and the FTC [Federal Trade Commission] and others have begun scrutinizing pharmacy benefit managers, they're doing so because the evidence shows that they're frequently preferring higher-priced drugs with higher rebates. This is how they make money, but they keep this system going by guaranteeing large rebate checks to employers who hire them.

One of the most concerning things I've heard is from PBM executives who said, "I've tried to offer a low-cost formulary in the marketplace, but I lose that business because employers may instead prefer big rebate checks."

Now, they may use those rebate checks to keep everybody's premiums low instead of lowering drug costs for the people who actually use the medicine. So, that big picture is something that we thought was important to do research on.

What was the objective of your study? Why did you decide to investigate this?

We did this research because most policy discussions don't fully grasp how this system works. You would tend to think that employers are choosing a PBM based on the one that can get them the lowest cost on the medicine that their employees use, like X dollars for this drug or Y dollars for that drug.

That may not be how the system really works. Employers are likely to choose from 3 or 4 competing options on a spreadsheet their employer benefits consultant presents them. That spreadsheet shows the guaranteed rebate that a PBM will pay them on different kinds of medicines, how much that medicine will add up to at the end of the year, and how much that figure will grow over the life of the contract.

When we looked in the academic literature, we couldn't find anything explaining how this system works. So, this research topic, and the objective of this study, was to shed light on how important rebates were when choosing benefits for employers and who is advising employers on these choices.

Can you discuss the main findings? Did any of them surprise you?

The bottom line is this. Employers are addicted to rebates and may not be hiring PBMs that get their employees the lowest drug costs. One key finding was that employers working with benefits consultants were more likely to be in what we call a rebate guarantee arrangement.

As Mark Cuban tweeted when he saw this paper, it emphasizes the opportunity that employers have to better understand the benefit options that are being offered as these decisions impact access to medicines for their employees and, ultimately, their overall health care costs.

Secondly, the research illustrates the significant role that consultants and brokers play in selecting a PBM. Nearly 60% of employers said these were the most influential individuals or groups in their rebate strategy during the PBM selection process.

Now, this was the first peer-reviewed analysis into how employers might value rebate dollars when comparing proposals and examining the role of benefits consultants. These findings continue the conversation that nontraditional PBMs, some other well-meaning benefits brokers, and groups like the National Alliance of Health Care Purchaser Coalitions have been having for some time.

It turns out that this was a really timely research question because we're starting to see more and more lawsuits where employees are suing their employer for choosing a PBM that causes them to pay more out of their pocket for their medicines. So, Mark Cuban, again, is an example of someone who's been out there talking about this when he said, "Help your CEO out and share this study with them."