Understanding how PBMs operate in the value chain matters for patient access

It was great to see a family practice physician from my home state of Ohio writing in STAT on an issue that matters to patients. We need more people from our communities joining the conversation about health care, rather than only perspectives from D.C. 

What struck me most, unfortunately, was that this opinion piece reflected what most people get wrong about how #PBMs operate in the value chain and the perverse incentives that exist as a result of the shadowy, opaque system of rebates perpetuated by PBMs. (FWIW, many of the criticisms from others about what Mark Cuban supposedly gets wrong fall into some of the same traps, but that’s a topic for another day.) As a pharmacist and as the head of a research organization, my approach is to understand the problem and what good research and evidence say to help find solutions. 

Let’s start with the list vs. net price discussion. PBM tactics dangle formulary placement based on the size of the rebate, not on the price a patient pays. The practice of maximizing rebates can impact patient out-of-pocket costs, which in turn impact patient adherence to medications. The reality is that drug companies have lowered net brand-name drug prices over the past five years, sharing greater and greater discounts with PBMs and insurers. It’s not clear where most of those negotiated discounts are going – but it’s not going to patients at the pharmacy counter, as patients are left paying cost-sharing based on a list price that the insurers don’t pay. 

The impact PBMs have on the 156 million patients covered by employer-sponsored insurance is also misunderstood. You may have heard me say before: Yesterday’s rebates are today’s fees and potentially tomorrow’s something else. Our research at NPC suggests more employers will question their contracts with PBMs, particularly around the use of large and growing rebate guarantees in lieu of meaningful conversations about the cost and benefits of medication.  

Additionally, NPC has outlined some of the concerns that our research suggests the federal government may want to address, including consolidation and integration that have yielded increased market power for PBMs and patient steering toward PBM-affiliated pharmacies.  

It’s worth pointing out the rise of “Big PBM”: Three of the top 15 Fortune 500 companies are companies with vertically integrated PBMs. As NPC pointed out in our comments to the FTC:  

• Nearly 80% of all prescription drug claims in the United States are processed by three vertically integrated companies: CVS Health, Express Scripts and OptumRx.  
• Each of these companies houses an insurer, PBM, group purchasing organization, specialty pharmacy, and a handful of other related businesses under one corporate umbrella. 
• Within these systems, the PBMs hold much of the power to demand higher rebates and fees from drug manufacturers to gain access to their covered lives, and hide where that money goes from employers and patients. 

Finally, it’s important to understand that while PBMs do play an important role in negotiating the cost of drugs, how we pay for medicines works differently than other parts of the healthcare system. In family practice or hospital settings, the price a covered patient pays for a service is based on the negotiated amount. Drug prices don’t work that way: The discount the PBM negotiates usually doesn’t change the price the patient pays at the pharmacy. 

Understanding how this works is important, because policymakers are seeking to establish greater transparency into this opaque system and re-align incentives toward patient-centered value. House and Senate staff have tenaciously uncovered how this system really works and bipartisan leaders are increasingly understanding the perverse incentives in the system and how it impacts patient access. And as many of you have noted on this forum, there is a lot we don’t know and what we do know needs to change.