pharmacy benefit managers (PBMs)

Mystery Middlemen Managing Your Prescription Drugs:

Pharmacy Benefit Managers (PBMs)

 

SUMMARY:

About 40% of Americans struggle to afford their regular prescription medicines - with 1/3 saying they have skipped filling a prescription one or more times, because of the cost.[1]   COVID-19 has exacerbated the problem by causing job and health insurance loss and delaying routine care.

 

Rhode Island policymakers know skyrocketing prescription drug prices must be better controlled.

 

Unfortunately, they have ignored a key cost driver: Pharmacy Benefit Managers (PBMs).

 

PBMs such as CVS Caremark, Express Scripts and OptumRx “manage” prescription drug benefits on behalf of insurers and siphon off enormous revenues in the complex non-transparent system that gets drugs from manufacturers to patients.

 

Other states are doing a much better job monitoring and controlling PBMs and have saved consumers and tax payers hundreds of millions of dollars.

 

Rhode Island should follow their lead.

 

To urge RI policymakers to take action, please sign this petition.

What are PBMS? 

In between most patients and healthcare providers are middlemen health insurers (“payers”) who take money from patients, pay some to healthcare providers, and keep some for themselves.  These multiple payers cause the U.S. to spend about twice per capita what other industrialized nations with “single payer” spend and they get better universal healthcare.[2] 

In the middle of payers, patients and pharmacies, there are Pharmacy Benefit Managers (PBMs).

PBMs: Middlemen for middlemen

PBMs are for-profit companies that “manage” prescription drug benefits for more than 266 million Americans on behalf of payers, including private insurers, Medicare Part D drug plans, government employee plans, large employers, and Medicaid Managed Care Organizations (MCOs).[3] 

PBMs help payers:

1) create a list of covered drugs for plans (“a formulary”);

2) manage drug utilization by enrollees (e.g., by setting co-pays, prior authorization policies, etc.);

3) reimburse pharmacies for providing the enrollee drugs.

This article will focus on:

  • Who Are Pharmacy Benefit Managers (PBMs)

  • How PBMs Harm Consumers and Taxpayers

  • PBM Oversight in Other States

  • Potential Roadblocks to RI Reforms

  • How RI Can Rein in PBMs

WHO ARE PHARMACY BENEFIT MANAGERS (PBMS)

PBMs began in the 1970s as small independent middlemen between insurers and pharmacies, taking a set fee for processing claims.

 

Today, three PBMs control 80% of the market and are part of large vertically integrated conglomerates that include health insurance companies and pharmacies (including “specialty pharmacies”):[4]

PBMs are also part of a complex non-transparent distribution system that gets drugs from manufacturers to beneficiaries (see Figure 1).[5]  

 

Source: https://healthpolicy.usc.edu/research/state-drug-pricing-transparency-laws-numerous-efforts-most-fall-short/, adapted from, Sood, N., et al., “Flow of Money Through the Pharmaceutical Distribution System,” USC Schaeffer Center for Health Policy white paper.

In this system, businesses can keep payments and discounts between themselves confidential, but analyses show that pharmaceutical manufacturers make the most profits for developing and manufacturing prescription drugs AND:

 

Revenues of top PBM conglomerates exceed those of top pharmaceutical manufacturers.[6]

PBM conglomerates rank 4th (CVS), 5th (UnitedHealth Group) and 13th (Cigna) on the Fortune 500 list ranking largest corporations by revenue.[7] 

PBMs drive revenues for their parent companies:[8]

  • “CVS Health's Pharmacy Services (PBM) segment will make 46% of $324 Billion in 2021 revenues for the company and remains key to its revenue growth.”[vi]  

  • In 2019, Cigna’s total revenues more than doubled ($14.3 billion to $38.2 billion) and its Express Scripts Holding Co. unit was the “driving force” behind the $22 billion surge.[vii]

  • UnitedHealth's Optum subsidiaries collected more profit in the fourth quarter of 2019 ($3 billion) than United Healthcare insurance ($2.1 billion). [viii]

 

[1] See, “The Emerging Role of PPP Value Chain Integrators in the U.S. Pharmaceutical Ecosystem,” https://hmpi.org/2020/06/10/the-emerging-role-of-ppp-value-chain-integrators-in-the-u-s-pharmaceutical-ecosystem/, “ Pharmacy Benefit Managers –PBMs” https://www.healthcaremedicalpharmaceuticaldirectory.com/PBMs.html (noting ever increasing complexity of PBM ownership), “The Real Reason CVS Wants to Buy Aetna? Amazon,”https://www.wsj.com/articles/the-real-reason-cvs-wants-to-buy-aetna-amazon-com-1509057307 , “[AIDS Healthcare Foundation] Sounds Alarm to FTC and DOJ on how Vertical Integration in Healthcare Harms Patients, Providers and Pharmacies,” ”https://www.streetinsider.com/Business+Wire/AHF+Sounds+Alarm+to+FTC+and+DOJ+on+how+Vertical+Integration+in+Healthcare+Harms+Patients%2C+Providers+and+Pharmacies/16533101.html, “The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation,” https://www.drugchannels.net/2021/04/the-top-pharmacy-benefit-managers-pbms.html#:~:text=We%20estimate%20that%20for%202020,of%20all%20equivalent%20prescription%20claims.&text=The%20largest%20PBMs%20operate%20with%20different%20overall%20business%20strategies%20and%20structures, “CVS completes acquisition of Caremark,” https://www.modernhealthcare.com/article/20070322/NEWS/303210006/cvs-completes-acquisition-of-caremark#:~:text=Drugstore%20chain%20operator%20CVS%20Corp,under%20the%20symbol%20''CVS

[ii] “State Drug Pricing Transparency Laws: Numerous Efforts, Most Fall Short,” https://healthpolicy.usc.edu/research/state-drug-pricing-transparency-laws-numerous-efforts-most-fall-short/, adapted from, Sood, N., et al., “Flow of Money Through the Pharmaceutical Distribution System,” USC Schaeffer Center for Health Policy, https://healthpolicy.usc.edu/research/flow-of-money-through-the-pharmaceutical-distribution-system/ See also, The Emerging Role of PPPs [Payers-Pharmacy-PBM Combinations] Value Chain Integrators in the US Pharmaceutical Ecosystem. See also Colleen Becker, National Conference of State Legislatures, “States Policy Options and Pharmacy Benefit Managers,” https://www.ncsl.org/research/health/state-policy-options-and-pharmacy-benefit-managers.aspx;

“Comparison of State Pharmacy Benefit Managers Laws, National Academy for State Health Policy,” includes interactive map with information on PBM legislation by state https://nashp.org/comparison-state-pharmacy-benefitmanagers-laws/;

Janet Leduc, National Community Pharmacists Association, “State Laws Concerning Pharmacy Benefit Managers – PBM Regulation by State; http://www.ncpa.co/pdf/pbm-regulation-by-state.pdf;

Pharmacists United for Truth and Transparency, “A Few Things PBMs Don't Want You To Know,” https://www.truthrx.org/pbmpractices.html.

[ii] See, e.g., “Pricing and Payment for Medicaid Prescription Drugs,” https://www.kff.org/medicaid/issue-brief/pricing-and-payment-for-medicaid-prescription-drugs/, “A Comparison of Brand-Name

Drug Prices Among Selected Federal Programs,” https://www.cbo.gov/system/files/2021-02/56978-Drug-Prices.pdf , “Understanding Drug Pricing,” https://www.uspharmacist.com/article/understanding-drug-pricing and “States and the 340B Drug Pricing Program,”https://www.ncsl.org/research/health/340b-drug-pricing-program-and-states.aspx Terminology and pricing formulas further complicate the process. See, e.g., “Pricing and Payment for Medicaid Prescription Drugs,” https://www.kff.org/medicaid/issue-brief/pricing-and-payment-for-medicaid-prescription-drugs/, “A Comparison of Brand-Name

Drug Prices Among Selected Federal Programs,” https://www.cbo.gov/system/files/2021-02/56978-Drug-Prices.pdf , “Understanding Drug Pricing,” https://www.uspharmacist.com/article/understanding-drug-pricing and “States and the 340B Drug Pricing Program,”https://www.ncsl.org/research/health/340b-drug-pricing-program-and-states.aspx

See, e.g., https://web.archive.org/web/20170503065805/http://pharmacybenefitconsultants.com/site/wp-content/uploads/2013/11/Painful-Prescription-Fortune-Magazine-10-28-13.pdf

“Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees: A proposed rule,” https://www.federalregister.gov/documents/2019/02/06/2019-01026/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals, https://caseforconsumers.org/2018/04/03/pbms-get-aggressive-to-keep-their-drug-profits-secret-from-consumers/ , and  “The Secret Drug Pricing System Middlemen Use to Rake in Millions,” https://www.bloomberg.com/graphics/2018-drug-spread-pricing/ , and https://www.axios.com/drug-rebate-curtain-express-scripts-d3c93f14-e699-4a60-ac1d-9f81e5a658c0.html

[iii] See e.g., “From Benefit Cards to Billions in Profits: The Evolution of the Modern PBM,” https://www.withmehealth.com/newsroom/from-benefit-cards-to-billions-in-profits-the-evolution-of-the-modern-pbm (Multiple PBM conglomerates now rank in the top 10 on the Fortune 500 list).

The Evolving Pharmaceutical Benefits Market. JAMA. 2018;319(22):2269–2270. doi:10.1001/jama.2018.4269, https://jamanetwork.com/journals/jama/article-abstract/2678286

[iv] https://fortune.com/company/cvs-health/fortune500/, https://fortune.com/company/cigna/fortune500/

[v] See, e.g., Abelson, Reed. “Major U.S. Health Insurers Report Big Profits, Benefiting From the Pandemic,” NYTimes.com, New York Times, August 5, 2020, https://www.nytimes.com/2020/08/05/health/covid-insurance-profits.html. Accessed August 14, 2021. Maddipatla, Manojna. “CVS boosts 2021 profit forecast after strong first-quarter, shares rise,” Reuters.com, Reuters, May 4, 2021, https://www.reuters.com/business/healthcare-pharmaceuticals/cvs-health-raises-2021-profit-outlook-higher-drug-store-sales-2021-05-04/. Accessed July 15, 2021. “Cigna bottom line rises with Express Scripts acquisition,” https://www.journalinquirer.com/business/cigna-bottom-line-rises-with-express-scripts-acquisition/article_edf0bbb4-4c23-11ea-a8c0-3fda225b46f3.html; and “Where UnitedHealth is making its money,”https://www.axios.com/unitedhealth-money-profit-unitedhealthcare-optum-c12551d8-6e84-493d-9e8f-564a30213a84.html .

 

[vi] “What are CVS Health’s key sources of revenue?” https://www.forbes.com/sites/greatspeculations/2020/01/03/what-are-cvs-healths-key-sources-of-revenue/?sh=6452942a2837, see also “CVS Health Revenues: How Does CVS Make Money?” https://dashboards.trefis.com/data/companies/CVS/no-login-required/MX1D0hKT/CVS-Health-Revenues-How-Does-CVS-Make-Money-, “Financial Analysis of CVS Caremark Pharmacies and Pharmacy Benefit

Manager,” https://truecostofhealthcare.org/wp-content/uploads/2018/02/CVS-Caremark.pdf

[vii] “Cigna bottom line rises with Express Scripts acquisition,” https://www.journalinquirer.com/business/cigna-bottom-line-rises-with-express-scripts-acquisition/article_edf0bbb4-4c23-11ea-a8c0-3fda225b46f3.html , https://fortune.com/company/cigna/fortune500/

[viii] “Where UnitedHealth is making its money,”https://www.axios.com/unitedhealth-money-profit-unitedhealthcare-optum-c12551d8-6e84-493d-9e8f-564a30213a84.html

 

[i] See, e.g., https://www.goodrx.com/blog/health-insurance-aside-americans-still-struggle-to-pay-for-their-medications/ , “Impact of cost-sharing on specialty drug utilization and outcomes: a review of the evidence and future directions,” https://www.ajmc.com/view/impact-of-cost-sharing-on-specialty-drug-utilization-and-outcomes-a-review-of-the-evidence-and-future-directions, and https://www.goodrx.com/blog/survey-covid-19-effects-on-medication-affordability/

[ii] The lack of single payer adds administrative costs and prevents the U.S. to negotiate as a country for prescription drugs results in about 1/3 of every U.S. healthcare dollar spent to NOT go towards actual healthcare. See e.g., https://pnhp.org/resource/pnhp-research-the-case-for-a-national-health-program/, https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending.