The Impact of Pharmacy Benefit Managers on Drug Pricing

September 2020 | Volume 19 | Issue 9 | Features | 900 | Copyright © September 2020

Published online August 21, 2020

Dillon J. Patel BSa, Neal Bhatia MDb, Mark D. Kaufmann MDc

aBiochemistry and Cell Biology, University of California, San Diego, La Jolla, CA bTherapeutics Clinical Research, San Diego, CA cIcahn School of Medicine at Mount Sinai, New York, NY

ingredient cost the PBM pays to the dispensing pharmacy for that line item.”5-7 In other words, the spread pricing is difference between the product acquisition cost for the PBM and what they’re telling the insurance company what they have to pay them.

What we find is the spread changes over time. In the Ohio state Medicaid program, when Imatinib 400 mg (generic Gleevec) first came out in 2016, it cost around $9,500 to the state Medicaid program. At the time, the PBM could acquire Gleevec for $9,017 and charged a $482-dollar spread. As Gleevec became less expensive over the next 18 months, the PBMs told the Medicaid insurance companies that this $9,500 drug is now going to cost them $7,200. However, the PBMs were only paying $3,800 – the spread widening greatly. Ohio Attorney General Dave Yost is suing one of the PBMs for these overcharges and other states have been following suit.8 A similar scenario occurred with aripiprazole 5 mg (generic Abilify) in New York. For New York state Medicaid in 2015, it cost $431 and cost $382 for PBMs. As time went on, it cost New York state Medicaid $163, and $21 for PBMs.9 On a broader scale, in 2017, it is estimated that New York state Medicaid spent 7.5 million dollars on aripiprazole 5 mg, while the ingredient cost was 1.4 million dollars, the pharmacy was estimated to be paid 1.2 million dollars, leaving 4.9 million in spread margin for the PBMs.10 The PBMs are also suspected of doing the same for entecavir 0.5 mg (generic Baraclude) in Indiana. In 2015, the cost to Indiana Medicaid program was $1,011, the cost to the pharmacy was $889. In 2017, the cost to Medicaid was $846 and the cost to the pharmacy was $138, leading to a PBM spread of $709 for the PBMs.9,11

To determine where a pharmaceutical medication will be on a formulary, it depends on the amount of rebate that PBMs receive. Rebates are, “a form of price concession paid by the pharmaceutical manufacturer to the health plan sponsor or to the pharmacy benefit manager working on the plan’s behalf… the terms of rebates are generally confidential, rebates are typically offered in exchange for improved market access.”12 In some cases, pharmaceutical companies have tried to provide low prices and were faced with a situation that if they did not raise the cost of the drug, therefore giving a larger rebate to the PBMs, they did not appear on the formulary.13 In other words, the PBMs can force the pharmaceutical companies to raise their prices to appear on the formulary.

The PBMs claim that rebates go back to the insurers so they can lower the premium for the patients, which there is no evidence for. Due to the 1987 Medicare Anti-Kickback Safe Harbor act, which was extended to PBMs in 2003, PBMs are exempt from penalties for taking kickbacks/rebates from supplier and are protected from having to release any of this information. They are not mandated to disclose how much they charge a company,how much they are keeping for themselves, and how much they are giving back to the insurance companies.

Alex Azar, the former president of Eli Lilly and Secretary of Health and Human Services during the Trump Administration, tried to implement change to lower drug prices. In May 2018, a Trump administration blueprint, The American Patients First, aimed to lower drug prices and reduce out of pocket costs based on USC article about the “copay clawback” phenomenon. Alex Azar came up with plan to “protect discounts offered to patients at the pharmacy counter” and to “create new safe harbor for fixed fee services arrangements between manufacturers and PBMs”.14 This would take protection away from PBMs and give it to the patients, so the patients would get the kickback.15 Unfortunately, this fell through because it had the potential to increase premiums for Medicare beneficiaries. The decision drew praise from PBMs, who had lobbied members of the Domestic Policy Council and top health officials to drop it.16

The Copay Accumulator
Pharmaceutical companies may provide patients with copay assistance programs, such as copay assistance cards or coupons. In theory, these programs are meant to help patients pay for their out-of-pocket costs for prescriptions until their pharmaceutical deductible is reached, which could be very useful for patients who have high deductible plans. These cards typically have a maximum, likely providing a few months of coverage. After the patient’s deductible would have been met, the insurance would kick-in to start full coverage for the drug. The insurance companies with the PBMs decided to double dip from the deductible with copay accumulator programs. The money is taken from the cards, but the patient’s deductible is not credited. The PBMs and insurance companies have the ability to take a few thousand dollars from the cards and patients have to start from scratch from their $5,000 deductible. This effectively can allow the insurance companies and PBMs to collect twice the amount of a patient’s deductible.17

Step Edits and Prior Authorizations
Most medical offices and physicians know of the obstacles that prior authorizations present. Utilizing step edits or step therapy may delay access to life changing medicine by having patients try and fail therapy, step by step. The PBMs can make the process of putting patients on life-changing medications quite cumbersome with repeated denials and tedious paperwork. The story of oncology patients having treatment denied for months by PBMs is not unique and happens to patients with all indications.18 At the same time, PBMs hire physician reviewers who may not practice actively and not all states require the reviewing physician to have a similar specialty as the prescriber.19 As PBMs are responsible for the development and maintenance of the formularies, they determine the tiers for coverage. Evzio, which is one of the brand name medications for naloxone on