Pharmacy Benefit Managers: Part of the solution to high drug prices
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Recently, three changes in the health care terrain collided to raise new concerns over rising drug prices: the advent of new high-priced “wonder drugs” like Sovaldi; revelations that Turing Pharmaceuticals and others bought the rights to low-cost drugs in order to re-price them at higher levels, and the enrollment of millions in the new ACA Exchange high-deductible plans, which enabled consumers to see the real price of drugs, not just the copays.

Amidst this political storm, some drug companies have chosen to dodge questions on their own pricing strategies by pointing fingers at the pharmacy benefit managers (PBMs) which employers, health plans, unions and government programs hire to negotiate discounts from manufacturers and others in the drug supply chain. This is a diversionary tactic designed to confuse the media and lawmakers about how pharmacy coverage works.  It’s important to provide some context and set the record straight.

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Modern pharmacy benefit management emerged in the 1990s as a wave of new blockbusters came to market and the FDA opened the door to direct-to-consumer advertising.  As utilization and costs skyrocketed, so did demand among payers for new PBM strategies to promote generics, more affordable brand options, 90-day home delivery and other consumer-friendly, cost-savings tools.

As these practices became more pervasive and successful in the commercial market, public programs took notice.  In 2003, the popular Medicare Part D program adopted a similar approach, relying on PBMs and health plans to develop competing coverage options for seniors to choose from.  Part D is the rare public program that’s popular with consumers and cost-effective, coming in below original cost projections year after year.

The competition-based PBM approach has been highly successful, yielding broad access to prescription drugs and 90% consumer satisfaction rates.  A recent study shows PBMs are on track to reduce prescription drug coverage costs by $654 billion over the next decade for government and commercial payers. 

Not all manufacturers are pleased with the emergence of PBMs since much of the savings they generate is the result of aggressive negotiations with drugmakers.  As political scrutiny on drug pricing increased over the past year, the drug industry has responded by trying to convince lawmakers there’s not actually a “pricing problem” but a “coverage problem.”  They make three basic arguments.

First, they blame employers and others that provide coverage for implementing cost-sharing strategies to restrain premium increases.  They argue this is the cause, not the effect of rising prices for drugs and other medical expenses.

Second, some have blamed their price hikes on PBM “middlemen.” This argument has been largely discredited because it makes little sense.  Would anyone believe Sony if it said its price hikes on TVs were inevitable due to aggressive discounting and rebating by Amazon or Walmart?  Most people understand such negotiations lead to lower, not higher costs for consumers.  Besides, if manufacturer rebates cause high prices, how does that explain price hikes on Martin Shkreli’s Daraprim or the countless other drugs where no rebates are even involved?

Third, drug companies criticize health plans for not using the manufacturer rebates to cover any cost-sharing expenses for each drug as it is dispensed at the pharmacy counter.  This is disingenuous and unworkable since manufacturers don’t pay individual rebates on drugs when consumers purchase them.  They pay rebates en masse, months afterward, once they’ve accounted for the total sales of the previous quarter or year.  That’s why most health plans use rebates to reduce premiums and cost sharing for all enrollees, not just those who take a particular drug.

The truth is PBMs want the same thing their clients and consumers want:  lower, not higher drug prices.  That’s why PBMs promote generics over brands whenever possible.  The large, sophisticated purchasers who hire PBMs—Fortune 500 companies, major labor unions, and plans in government programs like Medicare Part D—offer performance incentives to reduce overall pharmacy costs. Those incentives far outweigh the rebate on any particular drug (almost all of which are passed back to payers anyways).

A good example of PBMs’ commitment to low prices can be seen in how they protected payers and consumers during last year’s launch of the new, $14,000 PCSK-9 inhibitor, anti-cholesterol drugs.  Once physician groups determined these were no more effective than existing, less expensive options, PBMs created benefit designs that encouraged patients to try generic statins instead.  As a result, these PCSK-9 inhibitors were virtually ignored in the broader marketplace, except for the small number of patients for whom statins did not work.  If PBMs preferred higher prices, wouldn’t they have encouraged, rather than discouraged, broader use of these expensive brands?

The bottom line is the best antidote to higher prices is more competition. The FDA could facilitate this by approving generics, brands and biosimilar competitors faster so they could get to market more quickly.  Prices for hepatitis C drugs were nearly cut in half when new brand competitors entered the marketplace.  In fact, a recent IMS Health report concluded that PBMs negotiated larger discounts on these products than most of the price-controlled nations in Europe.

As policymakers explore new ways to make prescription drugs more affordable, they should build on the proven successes of PBMs and explore new policies to increase the single, most powerful force for reducing drug costs:  more competition. 

Mark Merritt is president and CEO of the Pharmaceutical Care Management Association.


The views expressed by authors are their own and not the views of The Hill.