PBMs administer prescription drug benefits on behalf of health insurers, Medicare Part D prescription drug plans, big employers, and other payers. By negotiating with medication manufacturers and pharmacies to lower drug spending, PBMs have a significant behind-the-scenes effect on selecting total drug costs for insurers, restricting patients’ access to prescriptions, and dictating how much pharmacies rewarded. The increased scrutiny has been direct at PBMs concerning their participation in escalating prescription medication costs and expenditures.
What impact do PBMs have on the cost of prescription drugs?
PBMs work in the middle of the prescription drug distribution system. As a result, they:
- Create and manage lists, or formularies, of covered medications on behalf of health insurers. Which determine which drugs patients use and out-of-pocket expenditures.
- Utilizing their purchasing power to negotiate rebates and discounts with pharmaceutical manufacturers
- contract directly with individual pharmacies to compensate beneficiaries for drugs provided.
The federal Centers for Medicare and Medicaid Services determined that the capacity of PBMs to negotiate more significant rebates from manufacturers has helped cut prescription prices and halted the growth of medication expenditures over the past three years. However, PBMs may also promote marketing costlier medications over more cost-effective ones. Because rebates are usually establishing as a percentage of the manufacturer’s list price, pharmacy benefit managers (PBMs) receive a more large reimbursement for pricey medications than those that may deliver more good value at a lesser cost. Consequently, consumers with high-deductible plans or copayments based on a drug’s list price may suffer higher out-of-pocket expenses.
The very thought of pharmacy benefits can generate fear among firms. It is unclear why prescription costs are increasing so rapidly and whether Pharmacy Benefit Managers (PBMs) successfully manage those expenses and give the value they should.
We strive to help company executives like you appreciate the context and acquire insight into what’s happening in the pharmaceutical benefit market behind the scenes. Ultimately, this knowledge can aid in maximizing the value of your pharmacy benefits plan for your organization and its employees.
Trends in prescription drugs
Americans utilize pharmacy benefits more frequently than any other element of health care. According to a new study from Express Scripts, this is the case.
In 2019, around 19 prescriptions per person were fill. And more than three-quarters of those prescriptions were fill for patients with chronic conditions.
We’re hitting a perfect storm of pricey novel treatments, higher chronic illness rates, frequent prescription use, and escalating brand-name medication prices. In 2018, Americans spent $335 billion on prescription drugs; by 2025, that sum is predicted to reach $511.1 billion.
The news is devastating for businesses. The rapidly expanding financial risk associated with prescription drugs is currently the top health care concern for self-funded employers. Imagine a self-insured firm with 1,000 employees; a few unplanned pharmaceutical claims of $1 million may bankrupt them.
Specialty pharmaceuticals are a primary cost driver for prescription prescriptions.
Increasingly expensive brand-name and specialty drugs are critical factors to this increased expense. Specialty medicines are the category of pricey treatments for rare or persistent illnesses. Typically of biological origin, they demand medical supervision, patient care, and skilled drug handling and administration.
Few firms have the resources or determination to build the expert market knowledge of an experienced PBM. However, it is crucial to know that there are alternatives to the typical PBM strategy, which can be opaque and laden with potentially skewed incentives.
Employers should be aware that they may exercise significant influence over their pharmacy benefit management. In the best-case scenario, by negotiating unfettered visibility to all manufacturer revenues and prescription pricing based on actual costs plus an acceptable charge for services.
What Does PBM Spread Pricing Entail?
In the spread pricing model, pharmacy benefit managers (PBMs) charge a payer more than the pharmacy reimbursed for a given drug and pocket the difference. It is unknown how much of this payment is allocated to pharmacies vs. PBM profits.
Spread pricing contrasts with the “pass-through model,” PBMs charge payers the exact amount they reimburse pharmacies plus a fixed administrative cost. The federal government mandates that Medicaid fee-for-service providers employ the pass-through model; however, this obligation does not apply to PBM contracts with Medicaid MCOs or the private sector.
How Is Spread Pricing Applied?
Pharmacy benefit managers negotiate the cost for each prescription dispensed by a pharmacy. Based on these contractual prices, the PBM pays the pharmacy.
Marking up the spread is used when a pharmaceutical benefits management (PBM) utilizes spread pricing to charge more than they pay the pharmacy, whether the practice is disclosed. They may adopt this tactic when they know that the plan sponsor will do nothing.
This results in the plan sponsor regularly paying exorbitant fees without their understanding.
Requirements for Prescription Drugs and Health Care Spending
Transparency initiatives are gaining favor in the healthcare industry to increase competition, cut spending, and boost responsibility. The CAA contains various criteria to promote and assist these initiatives, such as the requirement that plans and issuers report precise information regarding prescription medications and other healthcare expenses to the Departments.
This data submission must include information on the most commonly prescribed and most expensive drugs. It also compels the sharing of information regarding prescription medicine rebates provided by drug producers to entities authorized to market their medicines.