Berks County Medical Society Medical Record Summer 2019 - 14

FOLLOWING THE
MONEY WITH PBMS
by Lucy J. Cairns, MD, Editor

T

he money trail begins with dollars flowing from those whose
income is used to provide or purchase prescription drug
coverage (i.e., individuals , employers, taxpayers) to entities
which administer insurance plans (federal and state governments
via Medicare and Medicaid, and private insurance companies).
Public and private insurers then contract with PBMs to negotiate
drug prices with pharmaceutical manufacturers, decide which drugs
are included in the formulary, set the out-of-pocket costs for the
consumer, and decide which retail pharmacies will be included in
each plan.
The details of the financial arrangements under PBM contracts
with drug manufacturers is a closely guarded secret, so only the
broad outlines are known. If the system were to work in a way
that added value and efficiency to the health care system, the PBMs
would negotiate with drug manufacturers for the lowest price the
market would bear and all the savings would be passed along to
health care consumers, in the form of lower drug costs and therefore
lower insurance premiums. This was the intention when the federal
government extended the Group Purchasing Organization Safe
Harbor protection to PBMs in 2003. Safe Harbor regulations
exclude certain business conduct from liability under the Federal
anti-kickback statute.
Instead, PBMs have created a business model that creates
incentives for drug manufacturers to increase the list prices
of medications, base decisions on which drugs to include in a
formulary on factors that have nothing to do with a drug's costeffectiveness, and give higher-priced medications preferential
treatment within a formulary (typically by placing them in a lower
tier).
The major (but not only) tool PBMs use to effectively maximize
their profits at the expense of consumers is the rebates they are
able to demand from drug manufacturers under the Safe Harbor
protections. A rebate in this instance is similar to the rebate a
refrigerator manufacturer might offer to a consumer who buys its
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brand. The list price is paid at the point of sale and then a portion
of that price is returned to the consumer later. The problem with
the rebates PBMs negotiate with drug companies is that they are
often not being used to reduce the cost to the consumer of the
particular drug. The dollars received as rebates by PBMs may be
kept by the PBM or returned in full or in part to the payor (i.e.
Medicare, Medicaid, or a private insurance company). Due to the
lack of transparency with regard to PBM contracts, the exact fate
of these dollars is difficult or impossible to determine. Payors may
often use the dollars returned to them to reduce insurance premiums
for all customers, but that is of very little help to the patient whose
co-insurance cost at the pharmacy is based on a percentage of the
inflated list price of a drug rather than the 'net price' the insurance
company actually pays. The inflated list price causes people covered
under a Medicare Part D drug plan to fall into the 'donut hole'
sooner and increases overall costs to Medicare.
The factors contributing to skyrocketing drug prices are
many and extremely complex, similar to the factors responsible
for the U.S. spending much more than other countries on other
components of health care while suffering from poorer health
outcomes. This complexity is part of the reason our society has
made so little progress in bending the cost curve when it comes
to heath care. When HHS ( U.S. Health and Human Services
Department) published a proposed rule change in February that
would largely remove PBM rebates from Safe Harbor protection, it
was met with opposition from the American Medical Association,
the American Hospital Association, and America's Health Insurance
Plans (the largest payer lobbying group), among others. These
groups argued, in part, that the proposed rule change would not
be effective at lowering drug costs and in fact might increase them.
The AMA has created a website around the issue of drug costs,
TruthInRx.org. It is one resource for anyone wishing to gain a
better understanding of this problem and offers people a chance to
tell their stories as well as learn how to take action on drug costs.


http://www.TruthInRx.org http://www.berkscms.org

Berks County Medical Society Medical Record Summer 2019

Table of Contents for the Digital Edition of Berks County Medical Society Medical Record Summer 2019

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