In Drug Pricing, PBMs Called the “Arsonist and the Firefighter in One”

Pharmacy benefit managers (PBMs), once just administrators created to ease claims processing, have grown to a position of power that comes with conflicts of interest aplenty.

Today, pharmacies and consumers alike encounter pitfalls, such as spread pricing, the use of rebate aggregators, and threats of drugs being removed from formularies. All this makes dealing with PBMs an unfortunate reality for drug manufacturers and pharmacies, and for patients who depend on the drugs that PBMs control, said a panel of experts at Patient-Centered Oncology Care® 2020.

The discussion was moderated by meeting Cochair Joseph Alvarnas, MD, vice president of government affairs, senior medical director for employer strategy, and clinical professor, City of Hope, and editor-in-chief, Evidence-Based Oncology™. The panel included Ray Bailey, BPharm, RPh, vice president of pharmacy, Florida Cancer Specialists; Antonio Ciaccia, chief strategy officer at 3 Axis Advisors; Jonathan E. Levitt, JD, attorney and founding partner at Frier Levitt; and Denise Giambalvo, MS, vice president of Midwest Business Group on Health.

The root of the problem with PBMs, Ciaccia explained at the start of the discussion, is the way their role has shifted. At first, their purpose was to allow health care benefits providers to leverage better drug prices. Now, he said, PBMs have essentially become the pharmacies themselves rather than just the middleman.

This then leads to the question of whether PBMs have any incentive to control drug costs when they have become part of that cost. And with the way things are going, it has become apparent that they lack any cost-control incentive, at least as far as the panelists can see. PBM practices, including spread pricing and demanding bigger rebates from manufacturers to keep their products on formulary, actually drive up drug prices, an issue that affects the entire health care system.

“[PBMs] have a profit incentive to keep the prices high, and work to discount off that price. So, if prices were low, we wouldn’t really need the PBMs as much as we need them today,” Ciaccia said. “Plan sponsors, big and small, all need somebody to come in and knock down those prices. So, [PBMs] are basically the arsonist and the firefighter into one.”

One way that PBMs have capitalized on their position is spread pricing, in which they keep a portion of the amount billed to health plans for prescription drugs instead of passing that money on to the pharmacies.

Ciaccia recalled a situation in which pharmacies within the Ohio Medicaid managed care plan saw a 60% to 80% decrease in their gross margins. The state auditor later discovered that there was $244 million in spread pricing by PBMs, and the spread had been growing over time.

Levitt raised the issue of language in contracts. Plan sponsors get rebate checks according to their agreements with PBMs, but clever wording can allow PBMs to withhold extra manufacturer rebate money.

Giambalvo explained that for employers and plan sponsors to protect themselves, there needs to be specific, clear contract language. “You can’t just say ‘rebates’—you have to say, ‘all administrative fees received from the manufacturer,’” she stressed. “Go back to the employer, so that everything is incorporated.”

Another problem Levitt raised is rebate aggregators, which PBMs sometimes hire to collect the rebates they get from manufacturers for including their drugs in the PBM’s formulary. The issue is that many rebate aggregators are owned by or affiliated with the very PBMs that employ them.

A Medicare plan retained by Levitt’s firm audited a PBM suspected of keeping extra money, and this issue was brought to light.

“What the plan didn’t know was that the PBM owned a rebate aggregator,” Levitt explained. “That rebate aggregator collected all the dollars, and it only gave about 40% of those dollars to the PBM. The PBM [contract] said, ‘We’re going to give you 90%, and we’re going to keep 10%.’ But what they failed to reveal was that the PBM rebate aggregator had sucked 62% of the money out the system.”

Self-insured employers also have rights that they need to know and take advantage of to avoid running into similar issues, according to Giambalvo. These employers can carve out pieces and create their own pharmacy network that they can direct-contract with, she said.

“Another really important piece is using an independent pharmacy and therapeutics committee, so that the [formulary] decisions are not being influenced by the rebates that are received,” Giambalvo noted. Oncology drugs that are not showing good outcomes have no place in formularies, so it’s important for employers or plan sponsors to know what they are paying for. In the long run, using more effective drugs will reduce total spending, she said.

Giambalvo and Levitt stated the importance of having consultants with a high level of expertise look over contracts, and both stressed that consultants should be independent. Employers and payers should be aware that many consultants are paid by PBMs. As Alvarnas pointed out, jumping through hoops to get fair deals from the payer and pharmacy perspectives should not be necessary, and it points to a system in need of an overhaul.

Providers see direct effects on patients that arise from working in a system with PBMs. In oncology, where drugs are constantly evolving and are very expensive, Bailey sees patients face barriers to care due to rising prices and cost shifts to higher co-pays and deductibles for patients.

“We try every day to keep up with all the changes in oncology and all the new drugs, but our patients face immense financial toxicities with drugs that are run through this pharmacy benefits space,” Bailey said. He noted that especially with oral therapies, the first adjudication of a $10,000- or $15,000-per-month drug will typically hit the deductible side of a medical plan.

Bailey’s medically integrated pharmacy at Florida Cancer Specialists mitigates high costs for patients by using value-based models in which it takes on risk for oral drugs the same way it does with intravenous drugs. The pharmacy also keep tabs on in-home supplies to avoid prescribing drugs that will go to waste.

Overall, panelists concluded that change needs to happen. But what that change is remains to be seen. Payers and employers working to better understand contracts, actively calling for audits of PBMs, working toward public policy that fosters transparency, and challenging abusive tactics from PBMs are all steps that could lead to progress.

“We talk a lot in health care about the desired move to value-based care, which is paying a good price for quality care for a patient,” Ciaccia said. “But I challenge people to ask themselves, how can you pay for value if you don’t know what you bought, whether or not it was done at a fair price, or really what the price was in the first place?”