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he episode features Ross Margulies, a Partner with the law firm Foley Hoag. Mr. Margulies outlines the role that PBMs play in Medicare, and how PBM tools and technology are working to lower drug costs for patients as well as improving their pharmacy experience.
JC Scott, President & CEO of the Pharmaceutical Care Management Association, discusses the latest trends, public policy developments, and political challenges impacting drug pricing and healthcare.
You'll hear the nation's top thought leaders, policy experts, and political analysts on topics like how employers, unions, and others use Pharmacy Benefit Managers (PBMs) to drive value for their members in the face of growing healthcare costs. You'll also learn about advancements in gene therapy, biologics, other cutting edge therapies, and the patient benefits and cost challenges that come with them.
The Pharmacy Benefit will also analyze the latest news from inside the industry and give you an educated perspective on where things currently stand and where we think they're headed.
JC Scott (00:00):
Welcome to the Pharmacy Benefit, a podcast that highlights the role of PBMs in serving millions of patients and consumers throughout the country. I'm JC Scott. Today, we're going back to basics, talking about the important role that PBM play in lowering healthcare costs. There's been a lot in the news recently, specifically when it comes to understanding PBM practices, so we're going to take the opportunity to talk about how PBMs work. Interest in looking under the hood on drug costs is nothing new, so what's prompting us to have this conversation today? Well, recently the federal trade commission voted on undertaking a study on PBM practices. Although, the vote was deadlock two to two, which means the study won't go forward right now, it seems that FTC is interested in the topic. And we're going to talk about it.
JC Scott (00:54):
Joining me in the conversation is Ross then. Ross is a partner with the law firm Foley Hoag, and as an experienced healthcare attorney, Ross has special expertise in Medicare and Medicaid law, including coverage, reimbursement, and regulatory oversight. Given his extensive work with manufacturers, insurers, PBMs, and pharmacists, Ross is an expert in the role of PBMs in the healthcare system. Ross, welcome back to the Pharmacy Benefit.
Ross Margulies (01:19):
JC, it is great to be here for a second time. I always enjoy our of conversations, and I'm particularly excited about getting back to the basics with you.
JC Scott (01:28):
Awesome. Well, let's do that. Let's start with a little bit of a level set on what PBMs do, so that we have some context for the conversation. Can you just talk, in very simple terms, about how PBMs impact healthcare for patients? With all the actors involved in getting prescription drugs to patients, what is the role of PBMs?
Ross Margulies (01:46):
Thanks, JC. It's pretty easy, when we start to talk about PBMs, to introduce a lot of strange terminology and a lot of funny acronyms, think DIR, Mac, RTBT, and the message and the fundamentals of what PBMs do gets lost pretty easily. I feel like as a healthcare attorney, I'm particularly guilty of, too quickly, getting down into the weeds. So what do PBMs do? It's a great question. Ultimately, PBM exist for really just one reason, which is to reduce the cost of prescription drugs. And they do a very good job at that. Studies have shown, for example, that PBMs generate savings of, I think, approximately a thousand dollars per patient per year. And they do this, at a very broad level, by serving as effectively the chief negotiator with two other drug supply chain actors. And those are the manufacturer of the drug and pharmacies.
Ross Margulies (02:41):
Maybe let's take each of those in turn to understand a little bit better about what PBMs really do. So with manufacturers, PBMs use their market share to negotiate formulary and volume discounts. And these discounts can take the form, as we've talked about before, is either upfront discounts or retrospective rebates. And in either case, these negotiations are typically quite successful. And though, in thus, as we see, for example, manufacturers continuing to raise their list prices, PBMs use formularies in these other tools to try to keep drug prices holding at a relatively stable level. Just one example I learned about recently, despite dramatic increases in, for example, the list price for insulin, the net cost of insulins has effectively remained flat, due to primarily PBM negotiated rebates.
Ross Margulies (03:32):
So I mentioned one other entity, JC. The other entity is pharmacies. In pharmacies, PBMs handle two different aspects. One is the creation of pharmacy networks, and in creating pharmacy networks, PBMs look to contract with the highest quality best performing pharmacies in order to increase patient care. They also negotiate payment rates with pharmacies, and in negotiating these payment rates, they can reward pharmacies for better outcome. So for example, operating medication therapy management programs, reducing the use of risky drugs or abuse of drugs. And so by conditioning a portion of pharmacy payment on meeting those quality metrics, PBMs are able to have a direct hand in shaping pharmacy quality. JC, that may have been a little less basic than you've asked for, but that's ultimately what PPMs do, they drive down costs by working with manufacturers and pharmacies.
JC Scott (04:28):
Working with, and negotiating with, on behalf of?
Ross Margulies (04:31):
On behalf of the patient and on behalf of their customer, who is the health plan, right? So in the commercial market, the health plan sponsor or the employer. And in the government market, either a Medicare or Medicaid plan.
JC Scott (04:42):
So PBMs do this work in both spaces. Can you talk a little bit about how that work extends into Medicare?
Ross Margulies (04:48):
Yeah. So today, PBMs manage the pharmacy benefit and the part D space, so the Medicare space, for approximately 48 million individuals. And much of what PBMs do in the Medicare looks a lot like what they do in the other spaces, whether we're talking about the employer, Medicaid or commercial market. One nice thing about talking about the Medicare market is we have a lot more publicly available data about the success PBMs have had in controlling drug prices and negotiating on behalf of patients. Just as an example, the government accountability office in 2019 found that PBM negotiated rebates kept part D spending 7% lower than it would've been without rebates. Effectively, both CBO, Congressional Budget Office, the Office Inspector General, the Government Accountability Office, all of these government agencies had looked year after year at the role of PBMs and continue to come back to one central truth, is that PBMs are remarkably successful in keeping premiums low in the part D space by negotiating with manufacturers and pharmacies.
JC Scott (05:55):
So PBMs are driving these savings in a way that's making health insurance, and the prescription drug piece of that health insurance, more affordable so more people have access at a lower cost?
Ross Margulies (06:07):
That's exactly right.
JC Scott (06:08):
Is there a clinical or a clinical care component to the work that PBMs are doing?
Ross Margulies (06:13):
Yeah, there is. And I think oftentimes this gets glossed over. And most people don't even realize, JC, but PBMs and health plans employ thousands of pharmacists and clinicians, maybe it's tens of thousands. And many of these serve on roles on, for example, a PBMs P and T committee or a pharmacy and therapeutics committee. I'm not sure we've talked about P and T committees yet, but that's a central role that a PBM plays. One common misconception. I've heard, JC, is that PBMs place drugs on formularies based on cost first and clinical benefit second, and nothing could really be further from the truth. So before any drug is considered for formulary placement, for example, it goes before one of these P and T committees, again, full of these clinicians full of these clinical pharmacists, who analyze all the relevant clinical and healthcare economic data, data from the FDA, data from clinical trials and use this data to review the products that they received and make clinical recommendations.
Ross Margulies (07:14):
It's only then, after making that clinical determination, that costs come into the picture. But PBMs do other things as well. So for example, PBMs use their clinical expertise to track, for example, and really reward medication adherence. PBMs have played a huge role in this horrible opioid crisis in managing opioid dispensing oversight, medication management, and then management of drugs for chronic conditions. So, yeah, I mean, there is a huge clinical benefit that TBMs play in their negotiations with manufacturers and pharmacies. And in the sort of consulting services, they perform on behalf of their clients, again, the plan sponsor.
JC Scott (07:57):
It also strikes me, Ross, something I didn't fully understand before I came into this industry a few years ago, that when I go to the pharmacy counter to pick up my medication, used to pick up my dad's medication, it all works pretty smoothly, but I didn't realize that the PBM was the back end of making sure all that real-time information exchange happened so that my experience ended up being pretty seamless from a consumer perspective.
Ross Margulies (08:21):
Yeah. One of the really exciting things is that the PBM marketplace, of course, continues to evolve. And with the growth of new technology and the growth of data, PBMs have been able to harness that, not just for tools on the backend, that you're referencing, but also putting tools in the hand of the consumer. One of the innovations PBMs have developed over the last several years are what are known as real time benefit tools. What's really remarkable here is that they've been so successful that now, for example, the centers for Medicare Medicaid services are requiring them to be used in, for example, for their beneficiaries. You may have seen these too. I know I have, and I think they're fantastic. Essentially, when you go into the doctor and your doctor prescribes you, let's say, a new statin, rather than what would traditionally happen, which is they send you to the pharmacy with whatever statin the prescribed birth thinks might be best, you get there and you may be in for rude awakening and may be, for example, that the statin your clinician provided you is on a higher formulary tier.
Ross Margulies (09:24):
And there had been a better, either both clinically and lower cost drug available to you. You have to go back to your prescriber or the pharmacy has to call your prescriber and say, "Can we prescribe different drug to Ross?" Instead, with these real-time benefit tools, I can have a conversation with my clinician in the office, where we can take a look at the drug that's being prescribed and know at that moment of prescribing what I'm going to pay, what other drugs are available, what my lowest cost option is. And the prescriber then, is able to use both his clinical judgment, as well as my sort of pocketbook restrictions, to prescribe the best drug for me and my family, which is really a pretty tremendous and positive development.
JC Scott (10:07):
That is cool technology and it's important work that's being done. And I think we've done a nice level set here, Ross, and really pumped up the positives of the PBM industry. But people are still asking questions. So let's talk a little bit about the questions that the FTC seems to want to ask. Given what you just described, in terms of the PBM role and lowering cost, improving the patient experience, why do you think we're seeing this interest from the FTC? And I know this isn't the first time we've seen interest from the FTC, right? They've looked at the industry a couple times before. What did they find when they looked at it before?
Ross Margulies (10:43):
There's actually a pretty long history, JC, of the FTC taking a look at PBMs and that probably shouldn't be a surprise, just given the sheer size and fundamental role that PBMs are playing in the drug supply chain. I think too often, and I'm glad we're having this conversation, folks get frustrated with high drug prices, and it's easy to point fingers at an entity that's perhaps, well, less understood than the others in the drug supply chain, like the manufacturer of a drug or a pharmacy, or as we'll talk about a PSAO. So interestingly, maybe not interestingly, perhaps not surprisingly, in previous instances when the FTC has examined PBMs, their findings have been not surprising, namely that the PBM industry is one, competitive and two, that PBM tools lower cost for consumers.
Ross Margulies (11:33):
So just as an example, in 2005, the FTC conducted a study of PBM-owned mail order pharmacies. And after a very extensive study, lots of questions, lots of documents requested from the PBMs. The FTC concluded that these pharmacies, these PBM mail own pharmacies did not result in higher costs for consumers. The FTC also has had a history, over the last decade or so, of chiming in on state efforts to regulate PBMs. So for example, I can recall, I think in 2009, New York had initiated an effort to regulate PBMs and the FTC chimed in and provided its comments, which essentially were the overregulation of PBMs is likely to increase costs, because PBM tools in general, lower costs for consumers. So where are we? We have a new chairwoman at the FTC. There's a lot of, politicization, sorry, that's a difficult word for me, over drug pricing. There's a lot of people pointing fingers, right?
Ross Margulies (12:35):
The pharmacists are pointing fingers. The manufacturers are pointing fingers. And as you mentioned in the beginning, people want to take a look under the hood. And so what I say, JC, is I think they should. And I think they're asking questions. And even if maybe they're not asking all the right questions, I have a feeling, I know what they're going to find, which is a competitive industry that, much like in 2005, continues to be good for consumers, but even more so has continued to innovate since 2005 and continues to bring value to patients. So this will be interesting. JC, as you know, while the FTC did not vote for that six B study, there is an RFI right now, and I expect PCMA and others are likely to comment in response and provide the FTC with some of the information we're talking about here today.
JC Scott (13:23):
You mentioned the RFI, you mentioned the outline of the study that we saw, and you alluded a little bit to what's changed since the FTCs done its prior work here. What would be your best advice to them, in terms of the questions they should be asking, to understand what's driving drug costs generally, and to understand the work the PBMs do specifically?
Ross Margulies (13:42):
Yeah, I mean, so maybe my first question to the FTC is, let's figure out what you're focused on. And I have a feeling what they're focused on is making sure consumers, or what they should be focused on is making sure consumers, have lower costs at the pharmacy counter. Right? And if there is a competitive drug supply chain, that should be the case. If you're immediately focused on high drug prices, it's a little interesting to start with a PBM rather than the entity that actually sets the drug prices themselves. But what I think ultimately is, the FTC as part of these questions, and I think the questions, frankly, are worded in a way that suggests that some folks, at least at the FTC have already made up their mind. But what I also know is they're not going to be able to turn their eyes away from what is ultimately fairly clear data, most of which is produced by federal government supporting what is really a tremendous record of PBMs keeping costs low and negotiating going head to head with manufacturers in negotiating these rebates, even as drug prices continue to rise.
Ross Margulies (14:49):
And so while I think there's been a lot of problematic rhetoric from the FTC, at the end of the day, their laws and regulations are focused on one thing, which is that competition should lower price for consumers. While I'm certainly not privy to every PBMs contractual relationships. I have a hard time seeing how PBMs really lose here, JC. If the FTC sticks, what is ultimately best for consumers, which is high value, low cost care, then I think they're going to need to conclude, at the end of this investigation, what they have historically found in 2005, and again in 2009, which is the PBM industry remains competitive and that PBM tools benefit consumers in terms of lower costs.
JC Scott (15:29):
And I might challenge you just a little bit, Ross, because I think you're-
Ross Margulies (15:31):
I love it.
JC Scott (15:32):
You're right. As an attorney, I'm sure you do. But I think you're right that the FTC traditionally has, and should be, focused on what is best for the consumer, and that should be the objective of their work. When I read the questions that were part of the RFI, when I reflected on the contours of the study, it looked to me like there was a much heavier focus on the interaction between PBMs and retail pharmacies and understanding how the FTC might intervene in a situation that you described earlier as negotiation between PBMs and pharmacies that creates healthy, natural tension and friction for the benefit of lower cost for consumers. But it seems like the FTC wants to step in and put its finger on the scale here. How would you react to that?
Ross Margulies (16:22):
I hope that's not true, but I certainly understand why you say that. Because if one reads the questions, for example, on the RFI, they sure look a lot like something, for example, a pharmacy trade association might have written, rather than a commissioner of the FTC. And in fact, it's public record now. You could see multiple meetings between the head of one of the pharmacy associations and the FTC. And certainly, we know there has been pressure. And even in the recent days, we've seen this from the pharmacy, this association to the FTC to try to tip the scales, as you'd put it. Ultimately, at the end of the day, I think the FTC will remain constrained by what they should remain constrained by, which is their job is to ensure competition and lower prices for consumers.
Ross Margulies (17:10):
Tipping the scales in favor of the pharmacies doesn't do that. And in fact, what it does is likely, would increase prices to consumers. Something that the FTC again has historically stayed away from and has really argued against. And so it would be a tremendous break from historic precedent. It would be very concerning. Again, my hope is once the FTC sees the data, much of that data, again, produced by entities like the Government Accountability Office, Congressional Budget Office, which shows the important role that PBM tools have played, both vis-a-vis pharmacies, but also vis-a-vis manufacturers. They'll ultimately conclude that PBMs remain competitive and pro-consumer, and there's not much merit to the arguments being put forth by the pharmacists.
JC Scott (17:58):
Before we wrap up, Ross, let's talk just a little bit about those arguments that are being put forward from the pharmacy community. And I always like to emphasize this when we talk about these issues, but obviously for PBMs independent pharmacies, chain pharmacies, these retail entities are hugely important for our collective mission of getting prescription drugs to patients. So we recognize that partnership and want that to work well, but can you just, again, in really simple high level terms, talk about how PBMs negotiate with and contract with pharmacies, who's representing the pharmacy in that negotiation, and what is at the heart of the contract that is put together.
Ross Margulies (18:37):
Absolutely. So JC, as we talked a little bit at the beginning of this episode, PBM pharmacy interactions come into basic forms. There's the negotiation of pharmacy networks, so who's in network and who's out of network. You know, as a consumer, if you want to pay the lowest cost, you're going to go to the end network pharmacy. And then there's the negotiation of the actual pharmacy payment rate. And both of these, ultimately though, were designed to, and the research shows result in, lower cost for patients. Pharmacy network design is, I should... I was going to say a fairly straightforward, but obviously involves a clinical and quality determination by a PBM and plan over identifying the highest performing pharmacies and offering consumers incentives, typically in the form of lower cost sharing to use those high quality pharmacies.
Ross Margulies (19:28):
Pharmacy networks consist of retail pharmacies, that consist of independent pharmacies, that consist of mail order pharmacies, giving consumers a wide range of choice. But also, again, driving consumers towards pharmacies that. based on historic precedent, have provided consumers with the best level of service and the best pharmacy quality that results in the best value for the patient. Pharmacy payment, so the actual payment from the PBM to the pharmacy is, on the one hand, quite simple. It consists of a payment for the dispensing of a drug, but PBMs have also taken up the mantle of promoting value-based care by tying a portion, albeit a small portion of pharmacy payment, to outcomes, right? So for example, trying to encourage patients to utilize more generic drugs, something that's good for everyone, the consumer, the taxpayer, the health plan.
Ross Margulies (20:22):
Trying to ensure that patients that need to be on a chronic medication are picking up their drug on time, and aren't missing important doses. You can think of lots of examples. So for example, with antiretrovirals where consistent medication adherence is critical to the health of that individual. And I think these sort of quality metrics have, in certain cases, caused some friction, as you put it earlier, with the pharmacies. Because pharmacies, certainly anytime you were telling a pharmacy a portion of their payment is conditioned on some type of outcome, they'd prefer something other than that. But what we do know, JC, from the data is that these pharmacy quality metrics have resulted in incredibly high quality care and lower cost for patients.
JC Scott (21:10):
At the end of all that, Ross, is the consumer and the benefit to the consumer that comes from the negotiation, the contracting practices that drive towards value and quality.
Ross Margulies (21:20):
That's right. And I think the consumer often gets lost in this very loud battle that's often waged. But at the end of the day, I think that's what the FTC should be focused on here. And at the end of the day, I think if that's what the FTC focuses on, I think they're going to identify what we already know, which is PBMs continue to be a real champion for patients accessing drugs at the lowest costs.
JC Scott (21:44):
I think that is a great note to leave it on, Ross. Thank you so much for my making time to join us again today. It was a great conversation.
Ross Margulies (21:50):
Well, I hope you'll bring you back, JC. This is always fun.
JC Scott (21:53):
We definitely will. And thanks to all of you for listening. I encourage you to subscribe to the Pharmacy Benefit and download all of our podcast episodes. You can do that on Google podcasts, Apple podcasts, Spotify, or wherever you find your favorite podcast. I'm JC Scott. Thanks for joining me.