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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
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Leslie Erdelack
Hey, everyone, you're listening to Health Affairs This Week. I'm Leslie Erdelack
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Marianne Amoss
And I'm Marianne Amoss. This is the weekly podcast where the editors at Health Affairs talk about the health policy news and stories we've been following throughout the week.
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Leslie Erdelack
And before we get into the show, a reminder that National Public Health Week starts next week. This is an annual campaign, and this year is all about reengaging with each other, practicing cultural humility and working together to make our communities healthier. On Tuesday, April 4th, Health Affairs is hosting an event and bringing together national, state and local experts to talk about what we can do to recruit and retain more public health workers who are essential to keeping our U.S. public health system running.
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Leslie Erdelack
We're grateful to the de Beaumont Foundation for making this Health Affairs Insider event open to everyone. You don't need to be an Insider to take advantage of next week's symposium, but if you want access to all of our special events and members only content, then consider becoming a part of our growing Insider community. You can check out our membership page for more details, but we hope to see you at 12 p.m. Eastern on April 4th for an important conversation about the public health workforce.
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Marianne Amoss
Thanks, Leslie. And now let's turn to this week's topic: Pharmacy Benefit Managers, or PBMs for short. PBMs are in the news again this week, and we'll get to the reason for that in a moment. But first, we wanted to talk a little bit about what PBMs are and what they do. So PBMs are third party administrators that manage prescription drug benefits for private employer based and government health plans.
00;01;45;24 - 00;02;11;07
Marianne Amoss
Altogether, that represents over 266 million Americans. PBMs are basically the middlemen in the drug distribution chain where drugs move from manufacturer to wholesalers to retail pharmacies and then to patients. PBMs play a key role in this chain in a few different ways. First, PBMs create and maintain formularies or lists of prescription drugs that are covered by a health insurer.
00;02;11;24 - 00;02;36;23
Marianne Amoss
This means they play a critical role in which drugs are covered by insurance plans and which are not. Second, PBMs negotiate rebates from drug manufacturers in exchange for including a certain drug in those formularies. And third, they reimburse pharmacies for dispensing drugs to plan beneficiaries. But the exact mechanisms by which PBMs accomplish all this are a bit opaque.
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Marianne Amoss
As a 2019 Commonwealth Fund brief put it, PBMs have a significant behind the scenes impact in determining total drug costs for insurers, shaping patients access to medications, and determining how much pharmacies are paid. Now, PBMs stated goal is to reduce drug costs. Their national advocacy group says that they will achieve $654 billion in savings for health plans and consumers between 2016 and 2025.
00;03;07;09 - 00;03;24;01
Marianne Amoss
However, PBMs have been the subject of some intense scrutiny in the past few years for their role in rising drug prices and the difficulty some have experienced getting access to medications. So, Leslie, I'll now pass it over to you to talk about what's been going on most recently.
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Leslie Erdelack
Sure. So on Monday, the Ohio attorney general filed a lawsuit under the state's antitrust law, naming several defendants who are big players in the PBM world, including Express Scripts, which is one of the nation's three largest pharmacy benefit managers. And the filing alleges that these companies colluded with each other by operating a scheme where basically the most elite PBMs, the ones that control nearly all the market power, come together and share information that is typically confidential information on each other's drug pricing,
00;03;58;04 - 00;04;25;19
Leslie Erdelack
the way that they structure their discounts and rebates, and details concerning their negotiation tactics with drug manufacturers. The lawsuit says that armed with this competitively sensitive pricing information about each other, this group of PBMs has been able to harmonize their negotiations with the drug manufacturer and effectively eliminate all competition between themselves, ensuring that they continue to profit from super competitive drug prices.
00;04;26;06 - 00;04;53;07
Leslie Erdelack
And we know that the PBM market has seen dramatic consolidation over the past two decades and that pharmaceutical companies seem to be sensitive to the size of PBMs. And like you mentioned, Marianne, drug manufacturers generally need their drugs to be placed on a PBMs formulary in order to be covered by insurance. And so not being on the formulary or being on a lower tier, for example, affects how many people use the drug, which directly affects the potential revenue from that drug.
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Leslie Erdelack
And that's why critics have often called this a pay to play system where PBMs coerce or incentivize manufacturers through what have previously been confidential negotiations to adjust their pricing models and pay larger fees to the PBMs in order to secure a spot on the formulary, just as one example. So engaging in these practices, banding together to share drug pricing and rebate information with each other is entirely self-serving.
00;05;22;08 - 00;05;47;25
Leslie Erdelack
It's anti-competitive, according to the complaint, in that it takes away the transparency needed for a competitive pharmaceutical market and it gives them greater bargaining leverage with the benefits going directly to the PBMs and leaving drug buyers and sellers with little choice but to play the game by the rules set by the PBM. Again, according to the lawsuit. So this isn't the first time that Ohio's attorney general has sued Express Scripts over its PBM services.
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Leslie Erdelack
But the scope of this complaint is much larger and this legal challenge sort of coincides with a groundswell of scrutiny directed at PBMs more recently. And this lawsuit, you know, if you read it, it lays out in a very almost poetic way how PBMs, instead of being the solution to bringing down high drug prices, have instead become the problem.
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Leslie Erdelack
And there are plenty of reasons why people might feel that way, right?
00;06;17;27 - 00;06;41;02
Marianne Amoss
That's right, Leslie. One reason is those rebates that PBMs receive from drug manufacturers in exchange for placement on formularies. Manufacturers say that the increasing rebates they have to pay PBMs are in turn causing drug list prices to rise. And in fact, a study from the University of Southern California showed a direct correlation between rebates and drug list prices.
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Marianne Amoss
But PBMs say that as those rebates have increased, they pass along a greater share to insurers as well. And multiple studies have shown that rebate payments do lower co-pays for plan enrollees, as well as government control costs. But there's also evidence that they can raise prices for consumers. So the evidence here is really mixed. Another area of concern is the practice called spread pricing, where PBMs charge insurers a higher amount for a drug than they pay a pharmacy to dispense it.
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Marianne Amoss
And then they pocket the difference. And overlaying these and other issues is that lack of transparency you mentioned earlier, Leslie.
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Leslie Erdelack
And there's been a lot of legislate of activity, too, lately, signaling, I think, that maybe lawmakers are becoming increasingly agitated by some of the issues that you just talked about and just this general feeling that the PBM industry has been able to go largely unchecked for so long and kind of manipulating both sides of the market. Now, the Senate Commerce Committee passed the PBM Transparency Act actually just last week, which is a piece of reform legislation that is now expected to move to the full Senate.
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Leslie Erdelack
And one of the items included in this proposal, in addition to addressing spread pricing, which you just mentioned, would prohibit the PBM from charging retail pharmacies retroactive fees and lowering the reimbursements that they're entitled to. So right now, these practices can be financially just devastating to small chain or independent pharmacies, so much so that they're forced to close, sometimes leaving people without access to a nearby pharmacy where they can go and get their medication, which is a serious problem.
00;08;27;23 - 00;08;56;01
Leslie Erdelack
And then the House Oversight Committee also sent letters earlier this month to some of the largest PBMs, including Express Scripts, asking them to surrender documents and communications related to things like formulary design and management, along with a list showing all of the fees and the rebates that get paid to the PBMs from the drug manufacturers, wholesale drug distributors, and pharmacies as a way of getting at more transparency.
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Leslie Erdelack
And then beyond this congressional push, the Federal Trade Commission has also been investigating PBMs. This has been in the news a lot lately for their business practices, sending subpoenas that, again, target the biggest PBMs in the country to get more information about how they operate. So clearly, a lot of activity being directed at the PBM industry right now.
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Leslie Erdelack
And it's looking more and more, I think, like we could see some aggressive reforms on the way.
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Marianne Amoss
That's right. There's lots to keep an eye on. But we'll have to leave it there for now. Thanks for listening to another episode of Health Affairs This Week. If you liked this episode, tell a friend, leave a review and subscribe wherever you listen to podcasts. Thanks for talking with me today, Leslie.
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Leslie Erdelack
All right. Thanks, Marianne.